Three Basic Considerations Markets targeted. Product and its characteristics. Company resources and policy.
Philip Kotler Defining a Product A product is anything that can be offered to a market for attention, acquisition, use or consumption; it includes physical objects, services, personalities, places, organisations and ideas.
Product Variables The Core Product – a product or services that is essentially the same as that of competitors. The Tangible Product – a product or service that is differentiated composition, origin, or tangible features from competing products. The Augmented Product – a product or service which is serviced after the sale and carries a warrantee from the producer, producing a continuing relationship with the seller.
Standardisation and Adaptation The fundamental international product decision after the decision to internationalize. International market approach alternatives to adaptation. – Sell the product as it is internationally. – Modify product for different countries or regions. – Design new products for foreign markets. – Incorporate all differences into one product and introduce it globally.
Standardisation and Adaptation FACTORS ENCOURAGING STANDARDIZATION Economies of scale in production Economies in product R&D Economies in marketing “Shrinking” of the world marketplace/economic integration Global competitions FACTORS ENCOURAGING ADAPTATION Differing use conditions Government and regulatory influences Differing consumer behavior patterns Local competition True to the marketing concept
Strategic Adaptation to Foreign Markets Low High Industrial/ Technology Intensive Consumer Need for Adaptation Degree of Cultural Grounding Nature of Product Source: Adapted from W. Chan Kim and R. A. Mauborgne, “Cross-Cultural Strategies,” Journal of Business Strategy 7 (Spring 1987): 31; and John A. Quelch and Edward J. Hoff, “Customizing Global Marketing,” Harvard Business Review 64 (May-June 1986): 92-101.
Factors Affecting Adaptation Decision to Alter Domestic Product SOURCE: Adapted from V.Yorio, Adapting Products for Export (New York; Conference Board, 1983), 7. Reprinted with permission
The Market Environment Government Regulations – Political and social agendas often dictate regulatory requirements. Nontariff Barriers – Product standards, testing, subsidized local products. Customer Characteristics, Expectations, and Preferences – Physical size, local behaviors, tastes, attitudes, and traditions. – Consumption patterns, psychosocial characteristics, and general cultural criteria.
The Market Environment Economic Development – The stage of economic development affects the market size and demand characteristics. Backward innovation of the product may be required to meet local requirements. Competitive offerings – Monitoring competing local products is critical in adjusting the product for competitive advantage. Climate and geography – Local climatic conditions and terrain features can make products vulnerable to damage.
Product Characteristics Product Constituents Branding Packaging Appearance Method of Operation or Usage Quality Service Country-of-Origin Effects
Product Constituents and Branding Product ingredients must not violate local legal regulations and social or religious customs. Care must be taken that the brand in name, symbol, sign, or design does not offend the local customer. Trademarks are especially vulnerable to counterfeiters. Selecting the global brand name – Translation – Transliteration – Transparency – Transculture
Packaging and Appearance Packaging serves three major functions: – Protection Improper handling and pilferage – Promotion Language and symbols – User convenience Packaging aesthetics- color and shape, overall size, and purchase quantity Adaptations in styling, color, size, and other appearance features play an importance role in how a consumer perceives a product.
Method of Operation and Usage The product that is operable in in the domestic market may not be operable in the foreign market. Electrical voltages and connectors vary around the world. English and metric standards are not comparable. Software may have to be translated into the local language.
Quality and Service Quality is essential to marketing products internationally, especially in markets where price is an important competitive factor. ISO compliance may be required by buyers. Servicing products in international markets requires producers to develop local repair staffs.
Country-of-Origin Effects The origin of a product may have a strong effect on consumer perceptions and biases about foreign products. “Mad Cow” Swiss France
Company Considerations Organizational capabilities? Is it worth it? Can we afford not to do it? Can a specific return-on-investment (ROI) be attained? Quality, price, and user perceptions? Warranties? Managerial talent?
Product Counterfeiting Costs U.S. firms over $60 billion a year In 2001, losses to software piracy were more than 11 billion dollars. Counterfeiting is estimated at 2% to 5% of total world trade annually. The largest number of counterfeit goods come from: – China – Brazil – Taiwan – Korea – India
Fighting Product Counterfeiting – Secure valuable intellectual property rights patent applications registration of trademarks mask works – Act to enforce legislative action bilateral and multilateral negotiations joint private sector action individual company measures
Four Product Alternatives for International Markets Selling the product “as is”, in the international marketplace. Modifying products for different countries and/or regions. Designing new products for foreign markets. Incorporating all the differences into one product design and introducing a global product.
Four Product Categories: Local products: perceived as having potential only in a single national market International products: Products having potential for a number of national markets Multinational products: Products adapted to the perceived unique characteristics of national markets Global products: Products designed to meet the needs of a global market segment
The Role of Brands A brand is a distinguishing name and/or symbol (such as a logo, trademark or package design) intended to identify the goods or services of either one seller or a group of sellers, and to differentiate those goods or services from those of competitors. A brand thus signals to the customer the source of the product, and protects both the customer and the producer from competitors who would attempt to provide products that appear to be identical.
The International Brand: Four Approaches Translation. Transliteration testing existing brand name for connotative meaning, e.g., “flic” pen. Transparency, i.e., meaningless brand name to minimize complexities. Transculture. Foreign language name forms a brand, e.g., vodka or perfume.
Brand Name Selection Criteria Easy to learn and memorize. Suggest a product class. Support a symbol or logo. Suggest associations. Be credible. Be distinctive. Be available and legally protectable.
What Is Brand Equity? The set of brand assets and liabilities linked to the brand - its name and symbols - that add value to, or subtract value from, a product or service. These assets include brand loyalty, name awareness, perceived quality and associations.
Brand Equity Assets Brand Loyalty. Awareness of Brand Name and Symbols. Perceived Quality. Associations. Others, e.g., patents, trademarks, channel relationships.
Price Dynamics – Pricing is the only revenue generating element of the marketing mix. – Pricing is a means of attracting and communicating an offer to a potential buyer. – Pricing is a competitive tool. – Pricing can be used to position the product or service in the marketplace.
Price Dynamics Skimming – Using high-priced unique products to achieve the highest possible contribution in a short initial time period, then gradually lowering the price as the market. Market Pricing – Following competitive pricing in the target market; adjusting production and marketing mix to competitive conditions. Penetration Pricing – Offering low pricing to generate volume sales which hopefully will compensate for low margins
The Setting of Export Prices EXTERNAL 1Market-related factors Nature of demand/target audience characteristics Government regulations (e.g., duties) Exchange rate stability 2Industry-related factors Competition intensity Nature of competition INTERNAL 1Marketing Mix Product (e.g., old/new; standardized/differentiated Distribution system (e.g., length) Promotion needs (e.g., sales efforts) 2Company characteristics Extent of internationalization Countries exported to 3Management attitudes Importance of exports Overall price position of firm ASSESSMENT OF PRICING ENVIRONMENTS Pricing Policy Selection Pricing Strategy Determination Setting of Specific Price
The Setting of Export Prices Customer Purchase Factors ability to pay price-quality relationship reaction to marketing mix market support Pricing Policies Factors profit maximization market share survival return on investment competitive policies – copy competitive pricing – follow competitive pricing – price to discourage competitive entry
Export Pricing Strategy Cost-oriented pricing – Standard worldwide price- regardless of buyer’s location in the market(s) – Dual pricing differentiates between domestic and export prices Cost-plus method allocates domestic and foreign costs to the product. Marginal cost method considers direct costs of producing and selling exports as floor (lowest) price. Market-differentiated pricing – based on the dynamics of the marketplace changes in competition, exchange rates, etc.
Export-Related Costs Export-related costs – Cost of modifying a product for a foreign market – Operational costs of exporting – Cost incurred in entering the foreign market Price escalation for exports results from – Clear-cut and hidden costs Methods for combating price escalation – Reorganize the channel of distribution – Product adaptation – Change tariff or tax classifications – Overseas assembly or production
Terms of Sale Incoterms are the internationally accepted standard definitions for terms of sale set by the International Chamber of Commerce (ICC) since 1936. Incoterms – exworks (EXW) – free carrier (FCA) – free alongside ship (FAS) – free on board (FOB) – cost and freight (CFR) – delivered duty paid (DDP) – delivered duty unpaid (DDU)
Negotiating Terms of Payment Considerations – The amount of payment and the need for protection. – Terms offered by competitors. – Practices in the industry. – Capacity for financing international transactions. – Relative strength of the parties involved.
The Risk Triangle BUYER’S PERSPECTIVE SELLER’S PERSPECTIVE Source: Adapted from Chase Manhattan Bank, Dynamics of Trade Finance (New York: Chase Manhattan Bank, 1984),5
Terms of Payment Types of Payment – Cash in Advance Not widely used except for first time transactions – Letter of Credit Promise to pay Irrevocable, confirmed, revolving – Drafts Similar to personal check Must obtain shipping documents prior to delivery – Documentary collection Bank acts as collection agent Draft may be sold at discounted rate for immediate cash
Managing Foreign Exchange Risk Forward rate exchange market – “the exchange of currencies on a future date at an agreed upon exchange rate” Spot rate transaction – “the exchange of currencies for immediate delivery” Possible price manipulation responses to currency movements – Make no change in the dollar price (pass-through). – Decrease the export price (absorption). – Pass-through only a portion of the increase.
Exporter Strategies Under Varying Currency Conditions WEAK POSITION Stress price benefits Expand product line Shift sourcing to domestic market Cash-for-goods trade Full costing Speed repatriation Minimize expenditure in local currency STRONG POSITION Non-price competition Improve productivity/ cost reduction Sourcing overseas Prioritize exports Countertrade with weak currency countries Marginal-cost pricing Slow collections Buy needed services abroad
Price Negotiations Be aware that price is only one part of a comprehensive package. Avoid early price concessions. Carefully consider concessions that reduce price or profitability. – discounts, payment terms, product features Know conditions in importer’s market. Focus negotiations first on substantive issues (quality and delivery), then on price.
Dumping Ranges of dumping – Predatory dumping is intentional selling at a loss to increase market share – Unintentional dumping occurs when market factors cause the import’s selling price to fall below prices in the exporter’s home market Remedies for dumping – Antidumping duty are levied on imported goods sold at less than fair market value – Countervailing duties are imposed on imports which are subsidized in the exporter’s home country