Unit 3 - Product and Pricing Decisions Explained

Unit 3 – Product and Pricing Decisions
UNIT 3
&
DECISIONS
MR.T.SOMASUNDARAM
ASSISTANT PROFESSOR
DEPARTMENT OF MANAGEMENT
STUIDES
KRISTU JAYANTI COLLEGE
(AUTONOMOUS)
BENGALURU

UNIT 3: PRODUCT AND PRICING
DECISIONS
Products for consumers in global markets: Product
development, Product adaptation, analyzing product
components for adaptation, Product standardization,
Marketing of services, Product development, Quality,
Products and Culture, marketing consumer services globally,
Brands in international markets, Products and services for
businesses, Demand in global business to business markets,
Quality and global standards, Business services, Trade shows
crucial part of business to business marketing, Relationship
markets in business to business context. Global pricing
framework, pricing basis, marginal cost pricing and its
importance, transfer pricing, counter trade, systems pricing,
pricing and positioning, price quotation, INCO terms,
preparation of quotations.
Unit 3 – Product and Pricing Decisions 2

PRODUCT
Product - Meaning:
Product is a bundle of all kinds of satisfaction of both
material and non-material kinds.
It may be a good, a service, good + service, or an idea.
It include physical objects, design, brand, package,
label, amenities and satisfaction.
Product supplies two kinds of utility –
a) Economic utility.
b) Supplementary utility in the form of social –
psychological benefits.

Definition:
“Product may be anything that can be offered to a market to
satisfy a want or need.” - Philip Kotler
“It is the sum total of physical, economic, social and
psychological benefits. Marketers must define their market
in terms of product functions – what the customer expects
from the product.”
P
R
O
D
U
C
T
Physical Goods
Ideas
Services
Organizations
Persons
Places
Any visible object pen,
book, etc.
Traffic, Safety, etc.
Health care, tourism,
etc.
Service organizations
Musicians recreators
Tourist spot, centres,
etc.

Product Concept:
 Product is the most tangible and important single component
of marketing programme.
 Product policy and strategy is cornerstone of a marketing
mix.
 If product fails to satisfy customer, no additional cost on
any of other ingredients of marketing mix will improve
product performance in market place.
 Product decision are taken first by marketers and decisions
are central of all other marketing decisions like price,
promotion and distribution.
 Product is like vehicle by which company provides
consumer satisfaction and pulls the rest of the marketing
programme.

PRODUCT FOR CONSUMERS IN GLOBAL
MARKET
Introduction:
 Global competition is placing new emphasis on some
basic tenets of business.
 It focusing on importance of quality, competitive prices
and innovative products.
 Market place is shifting from seller’s to consumer’s
market because of more competition.
 Due to more competition, more choices, more power in
hands of customer, of course, drives the need for
quality.

Quality:
 Quality is essential for success in today’s competitive
global market.
 Quality it measured by two dimensions –
i) Market – perceived quality. ii) Performance quality.
 Consumer perception of a quality product often has
more to do with market – perceived quality than
performance quality.
 Relationship of quality conformance to customer
satisfaction is analogous (similar or equivalent) to an
firm’s delivery of quality.

Maintaining Quality:
 Maintaining performance quality is critical, but
frequently a product that leaves the factory at
performance quality is damaged as it passes through
the distribution chain.
 It is a special problem for many global brands for
which production is distant from market or control
of product is lost because of distribution system
within the market.
 Quality is not just desirable, it is important for
global market and decision to standardize or adapt a
product is crucial in delivering quality.

PRODUCT DEVELOPMENT
Green Marketing and Product Development:
 Quality issue of growing importance the world over, is
green marketing.
 Green movement with strong public opinion and
specific legislation favouring environmentally friendly
marketing and products.
 Green marketing is a term used to identify concern with
the environmental consequences of a variety of
marketing activities.
 Two critical issues that affect product development are
- i) the control of packaging component of solid waste
ii) consumer demand for environmentally friendly
products.

Product Development Process:
Some of the steps in planning and development of a new
product is –
1. New Product Idea:
- ideas may be contributed by scientists, professional
designers, customers, sales force, dealers, etc.
- we need 60 new ideas to get one commercially viable
product.
2. Ideas screening:
- to evaluate all ideas and inventions.
- poor ideas are dropped and through process of elimination
only most promising and profitable ideas are picked up for
detailed investigation and research.

3. Concept Development and Testing:
- all ideas that survive the process of screening (preliminary
investigation).
- they will be developed into mature product concept.
- it will have precise description for the ideas and features
of proposed ideas.
- concept testing helps the company to choose best among
alternative product concepts.
- consumer are offer their comments on precise written
description of product concept (i.e.) attributes and expected
benefits.
4. Business Analysis:
- it is a combination of marketing research, cost benefit
analysis and profitability analysis.
11Unit 3 – Product and Pricing Decisions

- it will prove soundness and viability of the selected
product concept from business view point.
- it is subjected to rigorous scrutiny to evaluate its market
potential, capital investment, rate of return on capital.
- it concentrated on product development and offer realistic
profit objectives.
5. Product Development Programme:
It has three steps, when a idea duly converted into a physical
product –
i) Prototype development giving visual image of the product.
ii) Consumer testing of the model or prototype.
iii) branding, packaging and labelling.
- it will provide ground for final selection of most promising
model for mass production & distribution.

Innovative Products and Product Adaptation:
 The important first step in adapting a product to a foreign
market is to determine the degree of newness as perceived
by the intended market.
 Evaluating the newness of a product in the international
market is based on stages in their product life cycle.
 To adopt innovations is depends on the product’s
characteristics.
 Products new to a social system are innovations, and
knowledge about the diffusion of innovations (i.e., process
by which innovation spreads) is helpful in developing a
successful product strategy.
 Marketing strategies guide and control to considerable
degree the rate and extent of new product diffusion.

Diffusion (Adaptation) of Innovations:
- diffusion process developed by E.M. Rogers which is same
as product life cycle.
- diffusion process looks at what is happening in market,
whereas product life cycle depicts the flows of revenues and
profits to business unit on account of diffusion process.
- diffusion process is described in form of normal
distribution curve. (bell – shaped curve)
- adoption and diffusion of any new product slowly develops
because of resistance to change and time taken for
communication of new innovation.
- adoption process gains momentum and grows rapidly.
- it achieve peak point when potential buyers have tried the
new product.

Elements in Diffusion of new ideas:
 The crucial elements in diffusion of new ideas are – i) an
innovation, ii) which is communicated through certain
channels, iii) over time and iv) among the members of a
social system.
 It is the element of time that differentiates diffusion from
other types of communications research.
 The goals of diffusion researcher and the marketer are to
shorten the time lag between introduction of an idea or
product and its widespread adoption.
 Variables affecting the rate of diffusion of an object is –
i) degree of perceived newness.
ii) perceived attributes of the innovation.
iii) method used to communicate the idea.

 The more innovative a product is perceived to be, the more
difficult it is to gain market acceptance.
Characteristics of Innovations – it assist in determining the
rate of acceptance or resistance of market to a product.
a) Relative advantage – perceived marginal value of the new
product relative to old.
b) Compatibility – its compatibility with acceptable
behaviour, norms, values, etc.
c) Complexity – the degree of complexity associated with
product use.
d) Trialability – the degree of economic or social risk
associated with product use.
e) Observability – the ease with which the product benefits
can be communicated.

Diffusion Process
1. Innovators:
- they are risk takers &
act as forerunners.
- they take risk in
different aspects with
different life style and
personality like young, educated, etc.
2. Early Adopters:
- they are opinion leaders and taste makers in their circle of
connections, community also.
- they are educated, rich and more successful than average.
- they exposed to information from all sources.

3. Early Majority:
- to adopt new product, bringing total adopters to 50%.
- average people with regard to income, occupation, age,
education.
- they make innovation and no longer a luxury or novelty,
don’t hold leadership position.
- they form bridge between new and old values of society.
4. Late Majority:
- they are older and less educated buyers and have limited
purchasing power.
- they buy product only when public opinion clearly is in
favour of product.
- they depend more on word of mouth and personal
guidance and less exposed to mass media.

5. Laggards:
- they tend to be older, with less education, poorer and
traditional in their outlook on life.
- caution, conservation and price consciousness characterize
the laggards.
- they have little contact with mass media particularly
newspapers and rely only on radio, TV and reference group.
Marketing and Innovation:
- innovation is purposeful, organized, risk taking change
introduced by marketer in order to maximize economic
opportunities.
- successful innovation is necessary for effective marketing.
- it makes rich in business operation with customer oriented
marketing.

- innovation is act of developing a novel idea into a
process must be feasible and must have commercial
acceptability.
A successful innovation passes through three stages –
1. Idea or invention.
2. Implementation of idea.
3. Market acceptance.
- a firm control partially the first two stages.
- the acceptance decision is external factor and depends
upon consumers and their reactions.
- marketer rely on all modes of promotion or marketing
communications to exert influence on consumer behaviour
and induce potential customers to adopt the innovation.

ANALYZING PRODUCT COMPONENTS
FOR ADAPTATION
 A Product is multidimensional and sum of all its features
determines the bundle of satisfaction received by the
consumer.
 Product may be adapted to a new market and it helps to
separate its many dimensions into three distinct
components, which is called as ‘Product Component
Model’.
 Impact of cultural, physical and mandatory factors that
affect a market’s acceptance of product can be focused on
these three core component.
 All these components include all product’s tangible and
intangible elements and provide bundle of utilities the
market receives from use of product.Unit 3 – Product and Pricing Decisions 21

1. Core Component:
 It consists of physical product – the platform that contains
essential technology, its design and functional features.
 Product variations can be added or deleted to satisfy local
differences.
 Adjustments in platform aspects may be costly because it
can affect product processes and require additional capital
investment.
 Alterations in design, features, flavours, etc. can be made to
adapt the product to cultural variations.
 (E.g.) Nestle sold same kind of corn flakes in USA and
Japan, but Japan children ate them mostly as snakes instead
of breakfast. To move product into larger market, Nestle
reformulated its cereals according to Japanese taste.

2. Packaging Component:
 It includes style features, packaging, labeling, trademarks,
brand name and other aspects of a product’s package.
 Packaging components frequently require both discretionary
and mandatory changes.
(E.g.) some countries require labels to be printed in more than
one language.
 Package size and price have an important relationship in
bottom of pyramid countries.
 Companies find that they have to package in small units to
bring the price in line with spending norms.
(E.g.) Sunsilk brand shampoo affordable in India by
packaging it in tiny plastic bags, enough for one shampoo.

 Any parts of packaging component do not have
unacceptable symbolic meanings.
 Particular attention should be given to translations of brand
names and colours used in packaging.
 In some countries, certain laws stipulate specific sizes,
measurement units and materials for packaging.
 Poor packaged product conveys an impression of poor
quality.
 Size of package is also another factor that make a difference
in product to make it success in market.
 Labeling laws vary from country to country which don’t
seem to follow any predictable pattern.
(E.g.) In Saudi Arabia, product names must be specific. (i.e.)
instead of ‘Hot Chilli’, it should be specified as ‘Spiced Hot
Chilli’. 25

 Labeling laws create a special problem for companies
selling products in various markets with different labelling
laws and small demand.
 Marketers must examine each elements of packaging
component and its part should conveys appropriate
meaning and value to new market.
3. Support Service Component:
 It includes repair and maintenance, instructions,
installations, deliveries and availability of spare parts.
 Products have to be adjusted to require less frequent
maintenance and special attention must be given to
features.
 Literacy rates and educational levels of a country may
require a firm to change a product’s instructions.

PRODUCT STANDARDIZATION
Definition:
“Product Standardization refers to the process of
maintaining uniformity and consistency among the different
iterations of a particular good or service that are available in
different markets”.
 It is a process of marketing a good or service without
making any changes to it.
 The strategy of product standardization requires a particular
industry or organization to follow certain guidelines in order
to maintain the consistency of a product’s nature,
appearance and quality.
 It lowers the available variety of products that serve a
similar purpose.

Uses of Product Standardization:
1. Cost Reduction – it reduces the cost of production.
2. Production efficiency – production becomes more efficient
when end goal is to maintain uniformity of products.
3. Establishment and strengthening of brand – when
particular product is available across different markets, in
consistent with uniform features, it becomes a brand that
consumer bases recognizes and trusts.
4. Convenience for consumers – it is convenient for
consumers when it comes to products like technology or
construction materials or automobiles.
5. Standards of quality – it ensures that all products are held
to a certain standard of quality.

Advantages of Product Standardization:
 Product Innovation.
 Benefits to the consumer.
 International market.
 Avoiding the cost of adaptation.
Disadvantages of Product Standardization:
 Stagnation.
 Failure to communicate.
 Differences in equipment.
 Cultural differences.

PRODUCT AND CULTURE
 A product is more than a physical item and it is a bundle of
satisfaction that the buyer receives.
 It include its form, taste, colour, odor, it functions in use,
label and packaging, etc.
 Market relates to more than a product’s physical form and
primary function.
 The values and customs within a culture confer much of
importance of these other benefits.
 Product is the sum of the physical and psychological
satisfactions it provides the user.
 A product’s physical attributes generally are required to
create its primary function.

 Few changes to the physical attributes of a product are
required when moving from one culture to another.
 Within a specific culture, certain features have little to do
with its primary function in order to add value to the
satisfaction received by the user.
 Value imputes to psychological attributes of a product can
vary among cultures and are perceived as negative or
positive.
 Adaptation may require changes of any one or all of
psychological aspects of a product.
 Product shows the extent to which the culture determines an
individual’s perception of what a product is and what
satisfaction that product provides.
 Novelty always comes up against a closely integrated
cultural pattern and it determines whether, when, how and
in what form it gets adopted.

 For analyzing a product for second market, extent of
adaptation required depends on cultural differences in
product use and perception between the market the product
was originally developed for and new market.
 Greater the cultural differences between two markets,
greater the extent of adaptation that may be necessary.
 Culture adaptation is often necessary when a company
markets a product in the international or foreign markets.
 Problems of adapting a product to sell abroad are similar to
those associated with the introduction of new product at
home.
 To adapt product in different culture, it require changes in
patterns of life, habits, taste, understanding of new ideas,
etc. in order to overcome natural resistance to change.

MARKETING CONSUMER SERVICES
GLOBALLY
 Some advice regarding adapting products for international
consumer markets also applies to adapting services,
because some services are closely associated with the
products.
 Products are classified as tangible, whereas services are
intangible.
Some of the characteristics of consumer services are –
i) Inseparable – its creation cannot be separated from its
consumption.
ii) Heterogeneous – it is individually produced and is thus
unique.
iii) Perishable – it cannot be stored but must be consumed
simultaneously with its creation.

 Service can be marketed both as an industrial (business – to
– business) or a consumer service, depending on motive of,
use by purchaser.
 Unique characteristics of services result in differences in the
marketing of services and the marketing of consumer
products.
Services opportunities in Global markets:
 Services has become largest sector in the international
market.
 There is dramatic growth in tourism has developed a new
market for travel services.
 (E.g.) Top consumer services are transportation, financial
services, education, telecommunication, entertainment,
information and health care, etc.

Barriers to entering Global markets for Consumer
services:
Four kinds of barriers face consumer services marketers
in this growing sector of global marketplace.
1. Protectionism:
Countries like European union is making modest
progress towards establishing a single market for
services.
But foreign service providers will be treated as
unification proceeds is not clear.
Reciprocity and harmonization is the key concepts in
European countries, which used to curtail the entrance
of some service industries.

2. Restrictions on Trans border Data flows:
 It is concerned with individuals data such as income, debt
payment histories, medical conditions, employment data
being collected, manipulated and transferred between
companies.
 Some countries had restrictions in collecting the data that
would require consent from individual before collecting
data.
 Most of the service companies like insurance, banks, credit
reporting firms, tour operators are affected.
 Those directive would have broad effects on data processing
and data analysis in order to prevent a firm from
electronically transferring information about individual.
 Global data transmission business continues to explode into
the new century, regulators will focus increased attention in
that direction.

3. Protection of Intellectual Property:
 It is difficult to combat arises from pirated trademarks,
processes, copyrights and patents.
 (E.g.) Computer design & software, brand names and other
intellectual properties are easy to duplicate and difficult to
protect.
 Trade Related Intellectual Property Rights (TRIPs) part of
GATT agreement obligates all members to provide strong
protection for copyright and related rights, patent,
trademarks, trade secrets, industrial designs and layout
designs, etc.
 The key issue in TRIPs agreement is that enforcement is
very difficult without the full cooperation of host countries.

4. Cultural barriers and Adaptation:
 Culture plays a bigger role in services than in merchandise
trade, which involved people frequently in services.
 (E.g.) McDonald’s requires polish employees to smile
whenever they interact with customers.
 Managing a global services workforce is certainly no simple
task.
 Closer management of service personnel is required in all
countries to maintain high levels of customer satisfaction.
 Opportunities for marketing of consumer services in global
will continue to grow in the future.
 International marketers have to be creative in responding to
legal and cultural challenges of delivering high – quality
services in foreign markets and to foreign customers at
domestic locales.

BRANDS IN INTERNATIONAL MARKETS
Introduction:
 A successful brand is the most valuable resources a
company has.
 Brand name encompasses the years of advertising, good
will, quality evaluation, product experience and other
beneficial attributes the market associates with the product.
 Brand image is the core of business identity and strategy.
 Brands are so valuable that they can be added in the balance
sheets as ‘intangibles’ – statement of value.
 Customers respond to brand images, which help them to
define their personal and national identities within a global
context of world culture and product benefits.

THE WORLD'S MOST VALUABLE BRANDS




Different brands in international markets:
1. Global Brands:
“A global brand is defined as the worldwide use of
name, term, sign, symbol, design or combination thereof
intended to identify goods or services of one seller and to
differentiate them from those of competitors”.
 Companies with such strong brands strive to use those
brands globally.
 Those brands perceived globalness appears to lead to
increase in sales.
(E.g.) UK – Heinz Baked beans Pizza.
 Ideally a global brand gives a Company a uniform
worldwide image that
enhances efficiency and
cost savings.

2. National Brands:
Company is described as preferring brands to be local,
people to be regional and technology to be global.
Multinationals must also consider rises in nationalistic
pride that occur in some countries and their impact on
brands.
Use global brands where possible and national brands
where necessary.
(E.g.) Unilever introduced its Omo brand detergent along
with local in many countries, whereas in India they sold
Surf excel and Lux and Lifebuoy soaps, are viewed as
Indian brands.

3. Country – of – Origin Effect (COE) and Global Brands:
“Country-of-origin-effect (COE) is defined as any
influence that the country of manufacture, assembly or
design has on a consumers positive or negative perception of a
product”.
 When customers becomes aware of country of origin, there
is possibility that the place of manufacture will affect
product or brand image.
 The country, the type of product, the image and its brands all
influence whether the country of origin will engender a
positive or negative reaction.
 Consumers have broad but somewhat vague stereotypes
about specific countries and specific product categories that
they judge “Best”. (E.g.) French Perfume, Italian leather,
Japanese Electronics and so on. 44

Ethnocentrism can also have country-of-origin
effects, feelings of national pride.
Countries are also stereotypes on basis of whether
they are industrialized, in process of industrializing
or developing.
Stereotypes are less product specific, they are more a
perception of the quality of goods and services in
general produced within the country.
Once the market gains experience with a product,
negative stereotypes can be overcome.
Country stereotyping can be overcome with good
marketing.

4. Private Brands:
 Private brands owned by retailers are growing as
challengers to manufacturer’s brand, whether global or
country specific.
 Private label products dominate grocery stores and many of
hypermarkets.
 Private labels are formidable competitors.
 They provide retailers with higher margins, they receive
preferential shelf space and strong in store promotions.
 Most important for consumer appeal, they are quality
products at low prices.
 Global brands will have to be priced competitively and
provide real consumer value to maintain market share.
 It may make cost and efficiency benefits of global brands
even more appealing.

PRODUCTS AND SERVICES FOR
BUSINESSES
Introduction:
 Every customers purchases the products and services based
on the brands.
 Nowadays, the main product the country sells for
international consumption is technology.
 Technology exports are represented by both smallest and
largest products.
 It has less relevance to marketing industrial goods than
consumer goods because there are more similarities in
marketing products and services across various country.
 Two basic factors account for greater market similarities
among industrial goods & consumer goods customers.

i) Inherent nature of product:
 Industrial products & services are used in process of
creating other goods and services, whereas consumer goods
are in final form and consumed by individuals.
ii) Motive or Intent of user differs:
 Industrial consumers are seeking profit, whereas ultimate
consumer is seeking satisfaction.
 These factors are manifest in specific buying patterns and
demand characteristics and it emphasis on relationship
marketing as a competitive tool.
 Business services are a highly competitive growth market
seeking quality and value.
 Increased competition and demand for quality goods and
services are implications for global marketer.

 Level of demand in industrial markets can involve some
huge bets.
Three factors that affect the demand in international
industrial markets differently than in consumer markets:
1. Demand in industrial markets is by nature more
volatile.
2. Stages of industrial and economic development affect
demand for industrial products.
3. Level of technology of products and services makes
their sale more appropriate for some countries than others.
DEMAND IN GLOBAL BUSINESS TO
BUSINESS (B2B) MARKETS

1. Volatility of Industrial Demand:
• Firms producing products and services for industrial markets
have an additional crucial reason for venturing abroad,
lessening the natural volatility of industrial markets.
• The important difference between consumer and industrial
marketing is huge, cyclical swings in demand.
• (E.g.) demand for consumer durables such as car, furniture's,
etc. can be quite volatile.
Two factors that make worse both ups and downs in demand –
a) Professional buyers tend to act in concert – purchasing agent
monitor demand for products or components that changes either
in consumer markets or supplier price directly affect their
ordering.
b) Derived demand accelerates changes in markets – it is
dependent on another sources.
50

2. Stages of Economic Development:
Rostow’s five stage model of economic development for
demand for industrial products and services are –
Step 1: Traditional Society. (industrial demand will be
associated with natural resources extraction)
Step 2: Preconditions for take off. (manufacturing begins
with primary needs like infrastructure development,
equipment, etc.)
Step 3: Take off. (manufacturing of goods has begun)
Step 4: Drive to maturity. (focus on manufacturing of variety
of consumer and industrial goods)
Step 5: Age of mass consumption. (manufacturing techniques
are being developed and increasing consumers)

3. Technology and Market Demand:
 Technology is the economic leverage to leap several stages
of economic development in short time for many countries.
 Technology is the competitive edge for many products in
today’s global markets.
 Ability to develop latest technology and to get benefit from
its application is crucial factor in international
competitiveness of companies.
Three factors that demand for technologically advanced
products due to –
i) expanding economic and industrial growth in Asia.
ii) disintegration of the Soviet countries.
iii) privatization of government-owned industries worldwide.

Quality involves –
- the level of technology reflected in the product.
- compliance with standards that reflect customer needs.
- support services and follow through and
- the price relative to competitive products.
 Recent studies have demonstrated that perceptions of
industrial product quality also can vary across cultural
groups even in the most technologically developed
countries.
 Business – to – business marketers frequently misinterpret
the concept of quality.
QUALITY AND GLOBAL STANDARDS

Quality is defined by the Buyer:
 One important dimension of quality is how well a product
meets the specific needs of the buyer.
 Good quality as interpreted by a highly industrialized
market is not the same as that interpreted by standards of a
less industrialized nation.
 Quality for many goods is assessed in terms of fulfilling
specific expectations – no more and no less.
 Price – quality relationship is an important factor in
marketing industrial products.
 It means that those markets require products designed to
meet their specific needs, not product designed for different
uses and expectations.
 A lack of universal standards is another problem in
international sales of industrial products. 54

 Success lies in offering products that fit a customer’s needs
with high quality along with advance technology.
 Total quality management (TQM) must be a part of all
MNC’s management strategy and it should involved in all
aspects of product development process, from generating
new ideas to prototype testing.
 International organizations are taking a effort to create
international standards in maintaining a quality in the
products and services.
 Some international organizations are setting standards for
the products entering their markets.
 Five series of International Industrial Standards (ISO 9000 –
9004) designed by International Organization for
standardization in many countries to meet the need for
product quality assurance. 55

 In many industries, the revenues associated with
services exceed the revenue from products. (E.g.)
Mobile phone services.
 For many industrial products after sales service is also
important.
 Businesses also buy a variety of services that are not
associated with products.
 (E.g.) Professional services like transportation and
insurance companies, banks and investment brokers
and health care providers, etc.
BUSINESS SERVICES

After – Sale Services:
 Effective competition abroad requires not only proper product
design but effective service, prompt delivery and replacement
parts without delay.
 For technical products, willingness of seller to provide
installation and training may be deciding factor for buyers in
accepting one company’s product over another.
 Customer training is rapidly becoming a major after sales
service when selling technical products in the countries.
 It emphasis on training programs and self – teaching materials to
help to overcome the common lack of skills to operate technical
equipment which is necessary for after sales services.
 After sales services are not only crucial in building strong
customer loyalty and all important reputation that leads to sales
at other companies.

Definition:
“Trade shows is an exhibition at which businesses in a
particular industry promote their product and services.”
 Trade shows serve as the most important vehicles for selling
products, reaching prospective customers, contacting and
evaluating potential agents and distributors and marketing
in most countries.
 Trade shows serve a much more important role in other
countries where most prospects are found.
 Mostly European trade shows attract high level decision
makers who are there to buy products.
TRADE SHOWS: CRUCIAL PART OF B2B
MARKETING

 Trade shows provide the facilities for a manufacturer
to exhibit and demonstrate products to potential users
and to view competitors products.
 Trade shows create an opportunity to create sales and
establish relationships with agents, distributors,
franchisees and suppliers that can lead to more
permanent distribution channels in foreign markets.
 Trade shows experts estimate that 80 to 85 percent of
people seen on trade show floor never have a
salesperson call on them.
 It include multimedia and elaborate product display
booths that can be virtually seen.

 Target market in any country can be found through this
medium by number and variety of trade shows.
 In eastern Europe, Fairs and exhibitions offer
companies the opportunity to meet new customers,
including private traders, young entrepreneurs and
representatives of organizations, etc.
 In Russia and Poland, exhibitions offer a cost –
effective way of reaching a large number of customers
who might feel difficult to target through individual
sales call.
 Specialized fairs in individual sectors such as
computers, automotive industry, fashion and home
furnishings are regularly takes place.

 The characteristics that define the uniqueness of industrial
products and services lead naturally to relationship
marketing.
 Long term relationships with customers that define
relationship marketing fit the characteristics inherent in
industrial products and are a viable strategy for B2B
marketing.
 The characteristics of industrial goods markets is the motive
of buyer and to make a profit.
 To fulfill needs of a customer, marketer must understand
those needs of customers that exist today in order to compete
in global markets to maintain long term relationships.
RELATIONSHIP MARKETING IN B2B
CONTEXTS

 The industrial customer’s needs in global markets are
continuously changing and suppliers offerings must also
continue to change.
 The objective of relationship marketing is to make the
relationship an important attribute of the transaction,
differentiating oneself from competitors.
 The reward for relationship marketing is loyal customers that
translate into long term profits.
 Focusing on long term relationship is important in most
international markets where culture dictates stronger ties
between people and companies.
 Constant and close communication with customers is most
important source of information for development of new
products.
 Internet is facilitating relationship building and maintenance in
new ways. 62

Global Pricing:
 Right price is one of the important determinants of business
success.
 Right Price, it doesn’t mean a low price and it depend on
various factors like marketing mix, nature of market,
demand and competitive situations.
 Uniqueness of price is only element generate revenue.
 Demand or competitive conditions sometimes make the
absorption of full cost into price impossible.
 Price is the only criteria for
consumer for comparing alternative items
and making the final choice.
GLOBAL PRICING FRAMEWORK
63

Pricing Objective :
1. Growth in Sales:
- right price can stimulate desired sales increase.
- price and non price objectives are coordinated to produce
the desired increase in sales.
- it secure faster increase in sales.
2. Market Share:
- it carries heaviest responsibilities for improving or
maintaining market share.
- it is sensitive indicator of customer and trade acceptance.
3. Predetermined profit level:
- 15 to 20% ROI is common decision in marketing and it is
most logical of all pricing objectives.

4. Meet or Follow Competition:
- stabilization of price levels and operating margins are
important for maintenance of short run profits.
5. Control cash flow:
- the objective of pricing is to return cash as much as
possible.
- investment in market research, development, promotion,
etc. must recovered within certain period.
Factors influencing Pricing Policy:
1. Cost:
 It is critical information in profitable pricing decision.
 They move resources to highest profit opportunities and
make best use of available scarce resources.
 It is possible to assess production efficiency and estimate
relative profits at various prices.

2. Objectives:
 It is based on objectives set by company.
 Objectives are i) maintaining ROI, ii) stability in prices, iii)
maintaining or increasing market share, iv) meeting or
preventing competition, v) maximizing profits.
3. Demand:
 It is depicted by demand curve and important factors in
pricing decision is demand for product.
 It use the curve to estimate changes in total demand for
product.
 Price is decided based on type of elasticity and when price
has major effect on demand, product is price elastic and vice
versa.

4. Competition:
 Determination of price is influenced by present and potential
competition.
 New product remains in market until competition arrives.
 Prices should be tailored to meet various types of competitive
postures.
5. Distribution channel:
 Goods are made available to consumers through middlemen.
 Compensation price included in ultimate price the consumer
pays.
 Longer the distribution channel, more will be price for product.
6. Government:
 It interferences control of prices, levying of taxes, etc. will
influence pricing policy of organization.
 Consumer have to pay more for product due to increased tax
component added in price.

7. Economic Conditions:
 It influences price fixation and raised during inflation because of
increase in costs.
 Prices are reduced as survival becomes a problem in depression.
8. Ethical Consideration:
 Fixing of price for product may resort to ethical consideration.
 Certain products makes profits but as a public welfare measure.
(E.g.) company sells certain life saving drugs or vaccine at price
which covers cost of production cost.
9. Types of Buyers:
 Price fixation dependent on types of consumers.
 Different buyers have different motives and values.
 Buyers observe quality, safety, status symbol in product.

10. Product Differentiation:
 It is one of the strategy to reach maximum customers.
 Different strategy are adopted to reach many customers.
 Products differentiated in size, shape, colour, costing,
etc.
11. Geographic Pricing:
 Manufacturers can adopt different prices in different
area.
 It includes cost of goods plus expenses include the
loading on cargo.
 Marketer charges same price to all customers regarding
their location.

12. Prestige Pricing:
 Price is based on perceived value of the product.
 Customers judge quality of product by its price and they
perceive higher the prices better will be quality.
 (E.g.) Customers pay additional price based on the quality of
product or service.
13. Contract Pricing:
 This is also called ‘sealed – bid pricing’.
 It is followed in case of specific job works.
 Government contracts are usually awarded through this method
called ‘tender’.
 Expected cost is worked out and quotation is placed.
 Minimum price is quoted is accepted and work contract is
entered with the party.

Pricing Basics: (International Pricing Influencers)
Nine considerations for setting basic pricing for marketing the
product outside the home country are –
1. Can the price be designed to represent quality?
2. Can the price sustain market competition?
3. Which pricing objective firm should follow amongst
penetrative pricing, skimming pricing or something else?
4. Should the exporter offer price – discount like trade
discount, cash discount, quality discount – allowance to its
international customers?
5. Can prices differ segment to segment?
6. What pricing opinions should be available with exporter in
case product cost increases or decreases?
7. Whether demand for the product is price elastic or
inelastic?

8. Whether the prices would be judged by host country
government as reasonable or unrealistic?
9. Can dumping norms of foreign nations pose a challenging
problem while designing the price?
Other factors –
a) Purchase power parity concept – exchange rate
fluctuations.
b) Transport cost & Middlemen cost.
Two approaches to international pricing strategies:
a) Design and manufacture the product and set the price to
realize the cost plus reasonable margins.
b) Set the price and then work backward on how much should
be production & marketing cost and then make the
investment in suitable machinery.

Influence of marketing environment on Pricing decisions:
The following environmental factors affect pricing decisions
–
a) Inflation – upward change in price is inflation. Rising
costs make it mandatory to increase the sales price.
b) Devaluation or Revaluation (currency fluctuations) – it is
the either reduction or increase in the value of one currency
against other currencies.
c) Government controls & Subsidies – it is provided to
domestic industry makes local products cheaper.
d) Competitive behaviour & Market demand – competition
influences price and hence hinders gross profit margins.
e) Transfer price – it is the price at which subsidiary receives
the goods from headquarters, which is depending on
company policy may be cost, cost plus & market base.

Global Pricing objectives and Strategies: (Approaches to
International Pricing)
The most popular approaches in Global pricing are –
1. Market Penetration Pricing:
• Economies of scale & low cost of resources are basic
necessities for using this method.
• Penetration policy is used to stimulate market and sales
growth by deliberately offering products as low prices.
• (i.e.) enter the market by setting a low price and selling
maximum quantity to attract large no. of customers.
• The low price policy is used as strategic competitive weapon
for brand positioning.
• This strategy is used by exporters, who are entering first
time in specific export market.

2. Market Skimming Pricing:
• Designing premium prices for a specific market
segment is known as skimming pricing.
• This policy is adopted in order to maximize revenue and
to match demand to supply.
• This pricing method is used for the product which is in
the introduction stage of product life cycle.
• Skimming price may be used to maximize profits until
competition forces a lower price.
• The objective of this price is to protect the image of the
product as high quality product. (i.e.) customer mindset
is high price means high quality.

3. Market Holding Pricing:
• Exporter who wish to maintain their market share in
foreign markets normally adopt this strategy.
• Usual price adjustments in response to competition are
done.
• In global marketing exchange rate fluctuations
influence market holding strategy.
• (E.g.) British Airways, one time, had Mumbai – London
air fare Rs.40000/-, which is altered to Rs.50000/- for
Mumbai-London-Mumbai return journey, the price
changes are temporary to hold the market.
• To maintain the market share, companies carefully
examine the affordability of each target segment.

4. Full Cost Pricing:
• This approach is suitable when a company has high variable
costs relative to its fixed cost.
• It insist that no unit of similar product is different from any
other unit in terms of cost.
• Prices are often set on a cost – plus basis, (i.e.) total costs
plus a profit margin.
• Both variable and fixed cost policies are followed by
international marketers.
5. Marginal Cost Pricing: (Variable cost pricing)
• Marginal cost is the cost of producing and selling one more
unit. It sets the lower limit to which a firm can reduce its
price without affecting its overall profitability.

• As the intensity of competition in international
markets is much higher than the domestic market,
competitive pricing becomes a precondition for
success.
• A large number of firms adopt this pricing
approach.
Major reasons for adopting this approach are:
• In cases where foreign markets are used to dispose of
surplus production, marginal cost pricing provides
an alternate market outlet.
• Products from developing countries seldom compete
on the basis of brand image or unique value.
Marginal cost pricing is used as a tool to penetrate
international markets.

Importance of Marginal Cost Pricing:
a) Cost Vs Benefit:
• Marginal benefit is the added gain each customer
receives from an added purchase.
b) Business Decisions:
• Marginal benefit is the extra profit from producing
more goods, while marginal cost is the expense of
producing them.
• New product that generates few sales will have
higher marginal costs for each item
c) Changes:
• Change in marginal costs will also change the
business decisions.

6. Transfer Pricing:
• Transfer Pricing or intracompany pricing refers to the
pricing of goods transferred from Operations or sales units
in one country to the company’s unit elsewhere.
• (E.g.) If a subsidiary company sells goods to a parent
company, the cost of those goods is the transfer price.
The objectives of transfer pricing are –
• To maximize the total profits of company.
• To facilitate parent – company control.
• To offer management at all levels, both in product divisions
and International divisions.
Some of the benefits are –
• Lowering duty costs by shipping goods into high tariff
countries at minimal transfer price.

• Reducing income taxes in high – tax countries by
overpricing goods transferred to units in such countries.
• Facilitating dividend repatriation when dividend
repatriation is curtailed by government policy.
Four arrangements for pricing goods for intracompany
transfer are as follows –
i) Sales at the local manufacturing cost plus a standard mark
up.
ii) Sales at the cost of the most efficient producer in company
plus standard mark up.
iii) Sales at negotiated prices.
iv) Arm’s length sales using the same prices as quoted to
independent customers.

7. Counter trading:
• Counter trading is a pricing tool that every international
marketer must be ready to employ, and willingness to accept
a counter trade will often give the company the competitive
advantage.
• Assessing this factor along with all other market factors will
enhance a marketer’s competitive position.
Types of Counter trade:
a) Barter – direct exchange of goods between two parties in a
transaction.
b) Compensation deals – involve payment in goods and in
cash.
c) Counter purchase – seller agrees to sell a product at a set
price to a buyer and receives payment in cash.

• d) Product buyback agreement – it is made when the sale
involves goods or services that produce other goods and
service (i.e.) production plant, production equipment or
technology.
Problems of Counter trading:
• Determining the value and potential demand for the goods
offered.
• Inadequate time to conduct a market analysis.
• Seller has been unprepared to negotiate in anything other
than cash.
8. Dumping:
“Dumping means selling a product in foreign market at
a price below the cost of production or home market price
(domestic market).”

• Dumping is considered as unfair competition
globally.
• This should be avoided by exporters by redefining
product category, extending credits to middlemen’s
or customers.
The different types of dumping are -
a) Sporadic dumping – sell out the excess stock that
may arises occasionally.
b) Intermittent dumping – periodic sale of goods in
abroad at prices below the home market price.
c) Long period dumping – may be resorted to
facilitate the utilization of full capacity of plant
continuously. 84Unit 3 – Product and Pricing Decisions

Pricing and Positioning:
Final selling price depends on Positioning -
• Price – Quality relationships (i.e.) High Price =
High Quality.
• Competitive Positioning: Premium or discount with
respect to competitors.
• Purchasing Power – How much customers are able
to pay for the product?
• Product Life Cycle & Skimming Price – High price
during introduction stage of PLC and falling prices
later on.
• Penetration Pricing – Discount to gain market
share. 85Unit 3 – Product and Pricing Decisions

Global Pricing Alternatives:
Following three pricing alternatives the exporter can try for
global pricing –
a) Extension / Ethnocentric or same price for all world
markets:
 Price of a product / service will be same throughout the world
markets.
 It could be very simple, less time consuming alternative &
also creating unified image all over the world.
b) Adaptation / Polycentric or Different Price for different
markets:
 Each business unit is permitted to design situational price as
per the market conditions.
 There is no necessity of comparing price in one country with
another country. 86Unit 3 – Product and Pricing Decisions

c) Invention / Geocentric or Objective – task pricing:
 Marketer sets the objectives like certain market
share or certain customer satisfaction level, etc.
 The prices which support the marketing strategy are
called objective task pricing.
 It is time consuming, it could be most suitable
approach.

Price Quotation:
Definition:
“Price Quotation is a document (generally written) which
seller provides to buyer for offering goods and services at stated
price subject to terms and conditions specified therein.”
“Price Quotation is a fix price which can’t be changed
once accepted by the customer.”
 Based on the relationship, mutual understanding between the
parties, the final price agreed can change which as compared
to the quotation.
 Price quotations must also specify the currency to be used,
credit terms, and the type of documentation required.
 Price quotation and contract should define quantity & quality.

Preparation of Price Quotation:
The description should include the following 15 points:
 Seller’s and buyer’s names and addresses.
 Buyer’s reference number and date of inquiry.
 Listing of requested products and a brief description.
 Price of each item (It is advisable to indicate whether items
are new or used and to quote the price in U.S. dollars to
reduce foreign exchange risk.)
 Trade discount (if applicable).
 Delivery point.
 Terms of sale & Terms of payment.
 Validity period for quotation.
 Total charges to be paid by customer.
 Estimated shipping date. 90
 Insurance and shipping costs.
 Currency of sale.

Definition:
“The Incoterms are a series of pre-defined commercial
terms published by the International Chamber of
Commerce (ICC) relating to international commercial law.”
 It is the ‘International Sale Price’ and corresponding
‘Rights & Responsibilities’.
Scope:
 It applies to delivery of tangible goods & not intangibles like
services, computer software, etc.
 It does not relate to other contracts like carriage insurance
and financing.
INCO TERMS (INTERNATIONAL
COMMERCIAL TERMS)
91

The following 13 Inco terms are used in International
business:
1. EXW – Ex Works:
 Exporter’s (Seller’s) responsibility is to keep the goods at
his factory gate, from where importer (buyer) is supposed to
life.
 Buyer has to bear all costs and risks.
 Seller could be made responsible for loading the goods on
departure.
2. FCA – Free Carrier: (Carriage unpaid)
 Exporter is supposed to hand over the goods to named
carrier by importer after cleared for export.
 This term can be used for any mode of transport including
multimodal transport.

3. FAS - Free Alongside Ship:
 Exporter’s (Seller’s) responsibility is to pack the goods and
place it near the ship in exporter’s country after custom
clearance.
 (i.e.) seller delivers the goods by placing them alongside
vessel at the named port of shipment.
 This term is used only for sea or inland waterway transport.
4. FOB – Free on Board:
 Exporter need to prepare the goods for exports, pack it,
bring it up to port, obtain custom clearance and load it on
board of ship at named port of shipment.
 The seller clears the goods for exports & this term can be
used only for sea or inland waterway transport.

5. CFR – Cost & Freight:
 Exporter is supposed to pay the sea freight charges in
addition to loading the goods on board of the ship.
 It includes risk of loss or damage to goods as additional
costs occurs after delivery and it is transferred from seller to
buyer.
6. CIF – Cost, Insurance & Freight:
 Exporter need to arrange transit insurance apart from
loading the goods on board ship and paying for sea freight.
 The seller obtains insurance only for minimum cover.
7. CPT – Carriage Paid To:
 This term is corresponds to CFR under sea transport.
 Exporter is supposed to load the goods on board of carriage
plus he has to pay the carriage freight up to named port.

8. CIP – Carriage & Insurance Paid To:
 Exporter has to load the goods in a carriage plus arrange
carriage freight and insurance charges.
9. DAF – Delivered At Frontier:
 Frontier is the name of place other than port, identified by
importer for arranging the delivery goods.
 Exporter’s responsibility is to unload the goods at the
importer’s port and bring it up to importer’s warehouse.
10. DES – Delivered Ex Ship: (named port of destination)
 Risk passes to the importer only after the goods reaches to the
destination.
11. DEQ – Delivered Ex Quay: (Duty Paid)
 Exporter’s responsibility is to unload the good in importer’s
country, pay for import duty & clear goods from customs and
bring goods up to importer’s warehouse. 95

12. DDP – Delivered Duty Paid:
 It signifies maximum responsibility for the exporter.
 Exporter need to incur all the cost up to delivering the goods
at importer’s factory, duly duty paid.
 This term represents minimum obligation to the buyer and
maximum obligation to the seller.
13. DDU – Delivered Duty Unpaid:
 This is similar to DDP, except the custom duty is not paid by
the exporter.
 The term duty includes responsibility for and risk of
carrying out of customs formalities, payment of such
formalities, customs duties, taxes and other charges.

Unit 3 - Product and Pricing Decisions Explained

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Unit 3 - Product and Pricing Decisions Explained