1. Webster University Product and Brand Management Global Pricing MRKT 5980

2. 6/4/2016 Webster University MRKT 5980 Page 2 Global Product Development The heart of the global marketing process that focuses on building adaptability into products to achieve worldwide appeal. The heart of the global marketing process that focuses on building adaptability into products to achieve worldwide appeal. The product development process The product development process The main goal is to build adaptability into products and product lines for worldwide appeal.The main goal is to build adaptability into products and product lines for worldwide appeal. Step 1: Idea generation Step 1: Idea generation Step 2: Screening Step 2: Screening Step 3: Product/process development Step 3: Product/process development Step 4: Scale up Step 4: Scale up Step 5: Commercialization Step 5: Commercialization

3. 6/4/2016 Webster University MRKT 5980 Page 3 Initiator Becomes Managing Unit Technical Development and Design Integration and Coordination of All Multinational Program Activities New Management Unit Assigned Unique Requirements to be Incorporated in Product Goals and Specifications Review of Design Activities to Plan, Develop, Manufacture, Introduce, and Support Product Guidelines for Program Execution Nonoccurrence with Managing Unit Activities to Plan, Develop, Manufacture, Introduce, and Support Product Global Program Management Viable Concept Does Initiator Have Resources? Initiator Managing Unit Affected Units(s) YesNo SOURCE: Llkka A. Ronkainen, “Product Development in the Multinational Firm,” International Marketing Review I(Winter 1983):24-30.

4. 6/4/2016 Webster University MRKT 5980 Page 4 The Location of R&D Activities Past tendency was to keep activities centrally located with parent corporation headquarters. Past tendency was to keep activities centrally located with parent corporation headquarters. Using foreign-based resources improves ability to compete successfully internationally. Using foreign-based resources improves ability to compete successfully internationally. Outsourcing shortens product development cycle time. Outsourcing shortens product development cycle time. Determined by the existence of specific skills. Determined by the existence of specific skills.

5. 6/4/2016 Webster University MRKT 5980 Page 5 Reasons for R&D Investments Abroad To aid technology transfer from parent to subsidiary. To aid technology transfer from parent to subsidiary. To develop new and improved products specifically for foreign markets. To develop new and improved products specifically for foreign markets. To develop new products and processes for application in world markets of the firm. To develop new products and processes for application in world markets of the firm. To generate new technology. To generate new technology. Host governments see R&D centers as highly desirable investments. Host governments see R&D centers as highly desirable investments.

6. 6/4/2016 Webster University MRKT 5980 Page 6 Global Product Development Organization Product development team that is functionally and internationally representative. Product development team that is functionally and internationally representative. Focus on customer input to identify universal and market-unique product features. Focus on customer input to identify universal and market-unique product features. R&D consortia allows companies to cooperate in developing new products and technologies. R&D consortia allows companies to cooperate in developing new products and technologies.

7. 6/4/2016 Webster University MRKT 5980 Page 7 The Testing of New Product Concepts Testing for performance and customer acceptance is the final stage of product development. Testing for performance and customer acceptance is the final stage of product development. Testing ranges from reliability tests to mini-launches. Testing ranges from reliability tests to mini-launches. Reasons that new international products fail: Reasons that new international products fail: Relying on instinct or hunch rather than testing and research.Relying on instinct or hunch rather than testing and research. Lack of product distinctiveness.Lack of product distinctiveness. Unexpected technical problems.Unexpected technical problems. Mismatch between functions.Mismatch between functions.

8. 6/4/2016 Webster University MRKT 5980 Page 8 International Product Testing Techniques Limited product launch in one country market. Limited product launch in one country market. Laboratory test markets to capture consumer reactions in a controlled environment. Laboratory test markets to capture consumer reactions in a controlled environment. Microtest marketing uses a permanent panel of consumers and assesses their willingness to buy after exposure to media and purchase incentives. Microtest marketing uses a permanent panel of consumers and assesses their willingness to buy after exposure to media and purchase incentives. Forced distribution tests rely on the continuous report of consumer reactions to new products already in the market. Forced distribution tests rely on the continuous report of consumer reactions to new products already in the market.

9. 6/4/2016 Webster University MRKT 5980 Page 9 The Global Product Launch Introducing the product into countries in three or more regions within a narrow timeframe. Introducing the product into countries in three or more regions within a narrow timeframe. Successful launches require: Successful launches require: Involvement of country managersInvolvement of country managers Pre-launch attention to localization and translation requirementsPre-launch attention to localization and translation requirements Increased education and support of the sales channelIncreased education and support of the sales channel Benefits of a global launch Benefits of a global launch Showcases the productShowcases the product Removes old models at onceRemoves old models at once Captures new product’s higher marginsCaptures new product’s higher margins

10. 6/4/2016 Webster University MRKT 5980 Page 10 Product and Brand Portfolio Management The marketer must have a balance of new, growing, and mature products capable of creating sustainable competitive advantage in the firm’s efforts to expand geographically or add to existing market operations. The marketer must have a balance of new, growing, and mature products capable of creating sustainable competitive advantage in the firm’s efforts to expand geographically or add to existing market operations. Analyzing the product portfolio Analyzing the product portfolio Market ratesMarket rates Market positionsMarket positions

11. 6/4/2016 Webster University MRKT 5980 Page 11 Example of a Product-Market Portfolio 1010 0 40 S GB D US C B F 1010 0 40 US GB D J C S F B Relative Market Share Market Growth Company A Company B (B=Brazil, C=Canada, D=Germany, F=France, GB=Great Britain, J=Japan, S=Spain, US=United States) B SOURCE: Adapted from Jean-Claude Larreche, “The International Product-Market Portfolio,” in 1978 AMA Educators’ Proceedings (Chicago:American Marketing Association, 1978), 276

12. 6/4/2016 Webster University MRKT 5980 Page 12 Market-Product-Business Portfolio Example Market Attractiveness ——— Market and Distribution Interconnectedness ………. Technology and Production Interconnectedness High Low High Competitive Strength Low Canned Tea-US Canned Tea-Europe Canned Tea-Asia Ice Cream-US Ice Cream-Europe Ice Cream-Asia Frozen Vegetables- Europe Frozen Vegetables-US Frozen Main Dishes- Europe SOURCE: Adapted from Susan P. Douglas and Samuel Craig, “Global Portfolio Planning and Market Interconnectedness,” Journal of International Marketing 4 (no.I, 1996):93-110.

13. 6/4/2016 Webster University MRKT 5980 Page 13 Product Portfolio Approach ADVANTAGES A global view of competitive structures. A global view of competitive structures. Global strategy based on allocation of scarce resources. Global strategy based on allocation of scarce resources. Marketing objectives based on product lines in markets served. Marketing objectives based on product lines in markets served. A convenient visual communication goal. A convenient visual communication goal.DISADVANTAGES Foreign competition does not follow the same rules as domestic competition. Foreign competition does not follow the same rules as domestic competition. Relationships between market share and profitability may vary. Relationships between market share and profitability may vary. Government regulations. Government regulations. Local content laws. Local content laws. Different production sites impact perceptions of risk and quality. Different production sites impact perceptions of risk and quality.

14. 6/4/2016 Webster University MRKT 5980 Page 14 Managing the Brand Portfolio A strong brand is a global marketing asset. A strong brand is a global marketing asset. Co-branding Co-branding A strategic alliance where two or more brands are combined in an offer.A strategic alliance where two or more brands are combined in an offer. Brand strategy decisions Brand strategy decisions Use of the corporate name.Use of the corporate name. Family brands for a wide product line.Family brands for a wide product line. Individual brands for each item in the product line.Individual brands for each item in the product line. Private (store) branding Private (store) branding Umbrella branding with the intermediary’s name.Umbrella branding with the intermediary’s name. Separate brand names.Separate brand names.

15. 6/4/2016 Webster University MRKT 5980 Page 15 Nestle’s Branding Tree 10 Worldwide Corporate Brands 45 Worldwide Strategic Brands Responsibility of general management at strategic business unit level 140 Regional Strategic Brands Responsibility of strategic business unit and regional management 7,500 Local Brands Responsibility of local markets Nestle Carnation Buitoni Kit Kat Polo Cerelac Baci Macintosh Vittel Contadina Stouffer’s Texicana Brigadeiro Rocky Soils Examples Herta Alpo Findus Mighty Dog Smarties After Eight Coffee-Mate Maggi Perrier L’Oreal SOURCE: Adapted from Andrew J. Parsons,”Nestle: The Visions of Local Managers,”The McKinsey Quarterly, no 2, 1996, 5-29;see also http://www.nestle.com; http://brand/index.asp.

16. 6/4/2016 Webster University MRKT 5980 Page 16 Private Brand Strategy SOURCES:Adapted from Sabine Bonnot, Emma Carr and Michael J. Reyner, “Fighting Brawn with Brain,” The McKinsy Quarterly 40 (no 2. 2000): 85-92; and Francois Glemet and Rafael Mira, “The Brand Leader’s Dilemma,” The Mckinsey Quarterly 33 (no 2. 1993):4.

17. Global Pricing Strategies

18. 6/4/2016 Webster University MRKT 5980 Page 18 Objectives of Transfer Pricing Competitiveness in the international marketplace. Competitiveness in the international marketplace. Reduction of taxes and tariffs. Reduction of taxes and tariffs. Management of cash flows. Management of cash flows. Minimization of foreign exchange risks. Minimization of foreign exchange risks. Avoidance of conflicts with home and host governments over tax issues and repatriation of profits. Avoidance of conflicts with home and host governments over tax issues and repatriation of profits. Internal concerns - goal congruence or subsidiary manager motivation. Internal concerns - goal congruence or subsidiary manager motivation.

19. 6/4/2016 Webster University MRKT 5980 Page 19 Influences on Transfer Pricing Decisions Market conditions in target countries Market conditions in target countries Competition in target countries Competition in target countries Corporate taxes at home and target countries Corporate taxes at home and target countries Economic conditions in target countries Economic conditions in target countries Import restrictions Import restrictions Customs duties Customs duties Price controls Price controls Exchange controls Exchange controls Reasonable profit for foreign affiliates Reasonable profit for foreign affiliates

20. 6/4/2016 Webster University MRKT 5980 Page 20 Corporate Use of Transfer Prices Three philosophies of transfer pricing are used to achieve corporate objectives Three philosophies of transfer pricing are used to achieve corporate objectives Cost-based: direct or cost-plus (most used)Cost-based: direct or cost-plus (most used) Market-based: discounted “dealer” pricingMarket-based: discounted “dealer” pricing Arm’s-length: same pricing as for unrelated partiesArm’s-length: same pricing as for unrelated parties Transfer pricing and environmental influences Transfer pricing and environmental influences Attempts to minimize tax liability of subsidiaries in high income tax countries and report profits in lowest tax rate jurisdictions may coincidentally increase other import taxes and duties.Attempts to minimize tax liability of subsidiaries in high income tax countries and report profits in lowest tax rate jurisdictions may coincidentally increase other import taxes and duties.

21. 6/4/2016 Webster University MRKT 5980 Page 21 Transfer Pricing Challenges Internal and external problems for the multinational corporation Internal and external problems for the multinational corporation Performance MeasurementPerformance Measurement The clouding effect of manipulating intra-corporate prices on a subsidiary’s apparent and actual profit performance. The clouding effect of manipulating intra-corporate prices on a subsidiary’s apparent and actual profit performance. Difficulty in maintaining relationships with subsidiaries that are negatively impacted by transfer pricing. Difficulty in maintaining relationships with subsidiaries that are negatively impacted by transfer pricing. TaxationTaxation Tax and regulatory jurisdictions contribute to and compound transfer pricing problems. Pricing that is justified and reasonable in the home country may not be perceived as such in the host country. Tax and regulatory jurisdictions contribute to and compound transfer pricing problems. Pricing that is justified and reasonable in the home country may not be perceived as such in the host country.

22. 6/4/2016 Webster University MRKT 5980 Page 22 Taxation Section 482 of the Internal Revenue Code recognizes four methods to determine arm’s length pricing: Section 482 of the Internal Revenue Code recognizes four methods to determine arm’s length pricing: The comparable uncontrolled price methodThe comparable uncontrolled price method The resale price methodThe resale price method The cost-plus methodThe cost-plus method Any other reasonable methodAny other reasonable method

23. 6/4/2016 Webster University MRKT 5980 Page 23 Arm’s Length Pricing Methods The comparable uncontrolled price method The comparable uncontrolled price method MNC member sales made to unrelated partiesMNC member sales made to unrelated parties MNC member purchases from unrelated partiesMNC member purchases from unrelated parties Sales between unrelated partiesSales between unrelated parties The resale method The resale method Pricing determined by subtracting the subsidiary’s profit from uncontrolled selling price.Pricing determined by subtracting the subsidiary’s profit from uncontrolled selling price. The cost-plus method The cost-plus method Pricing determined by consistently adding a profit markup to the internal seller’s total product cost.Pricing determined by consistently adding a profit markup to the internal seller’s total product cost. Any other reasonable method Any other reasonable method Typically the functional analysis approach of comparing the proportional contributions is used.Typically the functional analysis approach of comparing the proportional contributions is used.

24. 6/4/2016 Webster University MRKT 5980 Page 24 Pricing Within Individual Markets Determined by: Corporate objectives Corporate objectives Costs Costs Customer behavior and market conditions Customer behavior and market conditions Market structure Market structure Environmental constraints Environmental constraints

25. 6/4/2016 Webster University MRKT 5980 Page 25 Pricing Within Individual Markets Corporate Objectives Corporate Objectives Profitability (ROI) and competitiveness in the market (market share)Profitability (ROI) and competitiveness in the market (market share) Market situation pricingMarket situation pricing Skimming Skimming Penetration Penetration Product line positioningProduct line positioning Premium and mass markets Premium and mass markets Costs Costs Resource input costs are a frequently used basis of pricing determinationsResource input costs are a frequently used basis of pricing determinations procurement, manufacturing, logistics, marketing costs procurement, manufacturing, logistics, marketing costs

26. 6/4/2016 Webster University MRKT 5980 Page 26 Pricing Within Individual Markets Demand and Market Factors Demand and Market Factors The price elasticity of consumer demand strongly affects pricing in markets.The price elasticity of consumer demand strongly affects pricing in markets. Customer perceptions of product offerings and marketing communications.Customer perceptions of product offerings and marketing communications. Cooperation and strength of intermediaries.Cooperation and strength of intermediaries. Market Structure and Competition Market Structure and Competition Other competitors in the market affect and limit the strategic responses of marketers to changing market conditions.Other competitors in the market affect and limit the strategic responses of marketers to changing market conditions.

27. 6/4/2016 Webster University MRKT 5980 Page 27 Pricing Within Individual Markets Environmental Constraints Environmental Constraints Governments policy measures (taxes and tariffs) and price controls influence prices and pricing levels directly. Price controls require marketers to operate as if in regulated industries.Governments policy measures (taxes and tariffs) and price controls influence prices and pricing levels directly. Price controls require marketers to operate as if in regulated industries. Arguments Against Price Controls Arguments Against Price Controls The maximum price becomes the minimum price.The maximum price becomes the minimum price. In a wage-price spiral, labor turns against restrictions as wage increases are forestalled.In a wage-price spiral, labor turns against restrictions as wage increases are forestalled. Government controls are difficult to enforce and less tax is raised because less money is made.Government controls are difficult to enforce and less tax is raised because less money is made. Governments may need to bail out companies to prevent bankruptcies and unemployment.Governments may need to bail out companies to prevent bankruptcies and unemployment.

28. 6/4/2016 Webster University MRKT 5980 Page 28 Pricing Coordination Standard worldwide pricing is influenced by: Standard worldwide pricing is influenced by: The need for pricing latitude by subsidiaries faced with localized market conditions.The need for pricing latitude by subsidiaries faced with localized market conditions. The large absolute and relative size differences of international markets.The large absolute and relative size differences of international markets. The effect of arbitrage practices in closely located markets is reduced due to the physical distances between many markets.The effect of arbitrage practices in closely located markets is reduced due to the physical distances between many markets. Parallel imports will surface in markets where price discrepancies exist, regardless of distances.Parallel imports will surface in markets where price discrepancies exist, regardless of distances.

29. 6/4/2016 Webster University MRKT 5980 Page 29 The Euro and Marketing Strategy Launch of the Euro Launch of the Euro became one and only currency or 12 European nations as of January 1, 2002.became one and only currency or 12 European nations as of January 1, 2002. requires firms to reexamine business positioning.requires firms to reexamine business positioning. will push national markets closer with single currency and single cross-border price.will push national markets closer with single currency and single cross-border price. Marketing strategy changes Marketing strategy changes prices become transparent and require stronger. promotions and education of products to consumersprices become transparent and require stronger. promotions and education of products to consumers aim to lower prices as slowly as possible.aim to lower prices as slowly as possible. price differences reflect quality and service differences.price differences reflect quality and service differences.

30. 6/4/2016 Webster University MRKT 5980 Page 30 Countertrade More than goods, services, or ideas are exchanged in a sale More than goods, services, or ideas are exchanged in a sale A type of barter arrangement A type of barter arrangement More beneficial to some countries than financial exchange transactions alone More beneficial to some countries than financial exchange transactions alone Mechanism for firms to gain entry into new markets Mechanism for firms to gain entry into new markets Long-term sales stability Long-term sales stability Opens market for uncompetitive goods Opens market for uncompetitive goods E-commerce may help develop online global barter economy to increase benefits of Countertrade E-commerce may help develop online global barter economy to increase benefits of Countertrade

31. 6/4/2016 Webster University MRKT 5980 Page 31 Types of Countertrade Counterpurchase or parallel barter Counterpurchase or parallel barter two separate contracts and may include cashtwo separate contracts and may include cash allows for imbalance in value of goods exchangedallows for imbalance in value of goods exchanged Buypack or compensation arrangement Buypack or compensation arrangement supply of technology/equipment to produce goods sold with supplies brand for repaymentsupply of technology/equipment to produce goods sold with supplies brand for repayment Clearing arrangements Clearing arrangements clearing accounts established deposit/withdraw of countertrade activities - including switch-tradingclearing accounts established deposit/withdraw of countertrade activities - including switch-trading Offset Offset coproduction, licenses production, subcontracting, technology transfer, overseas investmentcoproduction, licenses production, subcontracting, technology transfer, overseas investment