International marketing

1. INTERNATIONAL MARKETING
Recommended Book:- Cateora and Graham

2. PGDM (IIM Raipur)
Bakhresa FMCG (South Africa)
Relationship Manager (HDFC Bank)
MD- Shyam Hospital
Faculty(MBA)- GLA University, Mathura
Swarit Yadav

3. Topics to be covered
 International pricing strategy
 Role of pricing
 Price standardization
 Pricing decisions
 Price distortion
 Transfer pricing
 Counter trade
 INCO terms
 Terms of sale
 Methods of financing and means of payment
 International channels of Distribution
 Channel members
 Channel management
 Retailing in international scenario
 International physical distribution

4. Pricing Policy
 A. 2 Pricing Objectives:
 1. As an active means of attaining marketing
objectives
 Companies use this when trying to achieve certain
objectives, profit margins or targeted market share.
 2. As a static element in a business decision
 Companies use this when they are foreign marketing is
not a priority
 Usually associated with trying to get rid of excess
inventories
• The more control a company has over the final selling price of a product,
the better it is able to achieve its marketing goals
• It is not always possible to control end prices

5. Pricing Policy
 B. Parallel Imports
 Where a manufacturing company sells its products to a
specific country; and those products are further sold to
another unintended country
 “Gray Market” situation can occur
 C. Exclusive Distribution
 Where manufacturers select preferred distributors to
sell its products at premium prices in order to:
 Maintain high profit margins; stock large assortments;
and to maintain the exclusive quality image.
 This also contributes to parallel imports

7. Pricing Policy
 Approaches to International Pricing
 Full Cost vs Variable Cost
 Full Cost is determined by combining the total cost plus a
profit margin to every unit
 Every unit must bear the total cost (including
international units sold)
 Variable cost is determined thru the incremental cost
associated with producing goods for selling them in
international markets

8. Pricing Policy
 Approaches to International Pricing
 Skimming Vs. Penetration Pricing
 Skimming is used when the marketplace is insensitive to
price; therefore premium price is charged
 Market places high value on items either because
of it’s unique features; quality or it has little or no
competition
 Penetration Pricing is used to stimulate market growth;
therefore prices are set low

9. Price Escalation
1. Costs of Exporting: the term relates to
situations in which ultimate prices are
raised by shipping costs, insurance,
packing, tariffs, longer channels of
distribution, larger middlemen margins,
special taxes, administrative costs, and
exchange rate fluctuations
• Price escalation refers to the added costs incurred as a result of exporting
products from one country to another
There are several factors that lead to higher prices:

10. Price Escalation (Cont.)
2. Taxes, Tariffs, and Administrative
Costs: These costs results in higher
prices, which are generally passed on to
the buyer of the product
3. Inflation: Inflation causes consumer prices to escalate
and the consumer is faced with rising prices that
eventually exclude many consumers from the market

11. Price Escalation (Cont.)
4. Middleman and Transportation Costs: Longer
channel length, performance of marketing
functions and higher margins may make it
necessary to increase prices
5. Exchange Rate Fluctuations and Varying
Currency Values: Currency values swing vis-à-
vis other currencies on a daily basis, which may
make it necessary to increase prices

12. Price Escalation
The Lower Prices are at Home
Aspirin $ 0.99 $ 1.23 $ 7.07 $ 6.53 $ 1.78
Movie 7.50 10.50 7.89 17.29 4.55
Levi 501 jeans 39.99 74.92 75.40 79.73 54.54
Ray-Ban sunglasses 45.00 88.50 81.23 134.49 89.39
Sony Walkman 59.95 74.98 86.00 211.34 110.00
Nike Air Jordans 125.00 134.99 157.71 172.91 154.24
Nikon camera 629.95 840.00 691.00 768.49 1,054.42
New York London Paris Tokyo Mexico City
SOURCE: Norihiki Shirouzu, “Luxury Prices for U.S. Goods No Longer Pass
Muster in Japan,” Wall Street Journal, February 8, 1996, p. B1; and
Elizabeth Fleick, “The Cost of Europe: Buyer Beware, Europeans Are Getting
Mad as Hell about Prices,” Time International, December 13, 1999, p. 38.
18-7
Irwin/McGraw-Hill
Los Angeles Madrid Stockholm Berlin Rome
Mariah Carey CD 16.22 16.09 17.82 15.31 20.67
Windows 98 117.99 123.94 179.79 211.20 264.46
Diapers 13.52 5.03 5.42 6.86 10.55

13. Price Escalation
 How to Lower the Effects of Price Escalation
 1. Lower cost of goods through
 Manufacturing overseas where labor costs are lower (China)
 Eliminate features or product quality
 2. Lower tariffs through
 Reclassification
 Persuading foreign country’s government
 Modification of product to fit in another class
 3. Lower distribution costs through
 Eliminate or reduction of middlemen
 Especially where value-added taxes are imposed

14. Price Escalation
 How to Lower the Effects of Price Escalation
 4. Using Foreign Trade Zones
 Imported goods stored or processed without imposing
tariffs or duties until items leave FTZ areas and is
imported into host country
 FTZ’s can lower costs through:
 Lower duties imposed
 Lower labor costs in importing country
 Lower ocean transportation costs with
unassembled goods (weight and volume are less)
 Using local materials in final assembly

15. Pricing Issues
 Issues with different methods of pricing strategies:
 1. Dumping
 Defined as either products that are sold in international markets
below their production cost; or products priced lower in foreign
markets than sold in the company’s domestic markets
 WTO has set up penalties for dumping thru:
 Countervailing duties
 Minimum Access Volume (MAV)(restricts volume that can a
country can import)
 2. “Screwdriver Plants”
 Company sets up plants to assemble products in the importing
country where they sell the final products.

16. Countertrade as a Pricing Tool
1. Barter: is the direct exchange of goods between two parties in a transaction
2. Compensation deals: is the payment in goods and in cash
3. Counter-purchase or off-set trade: the seller agrees to sell a product at a
set price to a buyer and receives payment in cash and may also buy goods
from the buyer for the total monetary amount involved in the first contract or
for a set percentage of that amount, which will be marketed by the seller in
its home market
4. Buy-back: This type of agreement is made the seller agrees to accept as
partial payment a certain portion of the output that are produced from the
plant or machinery that are sold to the buyer
• Countertrade is a pricing tool that every international marketer must be ready to
employ
• There are four distinct transactions in countertrading, which include:

17. Other Pricing Strategies
 3. Transfer Pricing Strategy
 Intra-company transfer of pricing
 4. Administered Pricing
 Attempt by companies within same industry to set prices
in international markets
 Cartels
 OPEC
 Shipping Industry
 Diamond cartel – controlled by DeBeers
 5. Government Influenced Pricing

18. Transfer Pricing Strategy
1. Sales at the local manufacturing cost plus a
standard markup
2. Sales at the cost of the most efficient producer
in the company plus a standard markup
3. Sales at negotiated prices
4. Arm’s-length sales using the same prices as
quoted to independent customers
• Prices of goods transferred from a company’s operations or sales units in one
country to its units elsewhere, which refers to intracompany pricing or transfer
pricing, may be adjusted to enhance the ultimate profit of the company as a
whole
Four arrangements for pricing goods for intracompany transfer are as follows:

19. Basic Factors in Pricing
Costs
Experience Curve
Competition
Demand

20. Pricing Basics
 The Role of Costs
 The standard pricing procedure for exporting consists of
 A cost-plus formula
 Price escalation: The added costs in exporting mean that
export prices tend to escalate over the domestic prices.
 Experience Curve Pricing
 Use of cost-based pricing has increased due to the
“experience curve” effect
 The experience curve shows how unit costs go down as
successively more units of a product are produced
 Experience curve pricing has been adopted primarily by
companies entering an existing market in the maturity
stage, because of the need to be competitive.

21. UNIT COST
P**
BREAKEVEN
TIME
PROFIT
MARGIN < 0
PROFIT
MARGIN > 0
ACCUMULATED
PRODUCTION = q
The Experience Curve Effect

22. Pricing Basics
 Competition
 The premium price differential refers to the degree to which the
firm might be granted a higher price by the market because of the
particular strengths of its product.
 Because of competition, prices in foreign market are sometimes
lower than at home, contrary to the price escalation effect.
 Demand
 The strength of demand tends to vary with the PLC stage, the
growth stage typically showing strongest demand.
 Demand and supply: Whether or not price can be high in a strong
demand market, is also determined by the supply from
competitors.

23. Basic Pricing Concepts
 The Global Manager must develop systems and
policies that address
 Price Floors
 Price Ceilings
 Optimum Prices
 Must be consistent with global opportunities and
constraints

24. SETTING A PRICE PREMIUM ON THE BASIS OF DIRECT
COMPARISONS WITH COMPETITION (Caterpillar example)
$ 20,000 IS THE COMPETITOR’S PRICE
$ 3,000 IS THE PREMIUM FOR SUPERIOR DURABILITY
$ 2,000 IS THE PREMIUM FOR SUPERIOR RELIABILITY
$ 2,000 IS THE PREMIUM FOR SUPERIOR SERVICE
$ 1,000 IS THE PREMIUM FOR LONGER WARRANTY
$28,000 IS THE TOTAL VALUE
$ 4,000 DISCOUNT
$24,000 FINAL PRICE
Competitive Value Pricing

25. EXPORT PRICING MULTINATIONAL PRICING
CURRENCY RISK, CREDIT
RISK
EXCHANGE RATES, HEDGING
TARIFFS, PRICE ESCALATION
TRANSFER PRICE
DUMPIN
G
COUNTERTRADE, SYSTEMS PRICING
SKIMMING VS. PENETRATION
PRICING
PRICE COORDINATION, GRAY TRADE
POLYCENTRIC PRICING, GEOCENTRIC
PRICING, ETHNOCENTRIC PRICING
POSITIONING PRICE,
PRICE/QUALITY
FINAL PRICE
Global Pricing: Added to the Pricing Basics…

26. Global Pricing Objectives and
Strategies
 Managers must determine the objectives for the
pricing objectives
 Unit Sales
 Market Share
 Return on investment
 They must then develop strategies to achieve those
objectives
 Penetration Pricing
 Market Skimming

27. Market Skimming and Financial
Objectives
 Market Skimming
 Charging a premium
price
 May occur at the
introduction stage of
product life cycle
Sony Ad. for camcorders

28. Penetration Pricing and Non-
Financial Objectives
 Penetration Pricing
 Charging a low price in
order to penetrate
market quickly
 Appropriate to saturate
market prior to
imitation by
competitors
1979 Sony Walkman

29. Unit
sales
Time in local
market
Profitability
Time in local
market
Penetration
price
Penetration
price
Skimming
price
Skimming
price
Skimming vs Penetration Pricing

30. Target Costing
1. Does the price reflect the product’s quality?
2. Is the price competitive given local market conditions?
3. Should the firm pursue market penetration, market
skimming, or some other pricing objective?
4. What type of discount (trade, cash, quantity) and
allowance (advertising, trade-off) should the firm offer its
international customers?
5. Should prices differ with market segment?
6. What pricing options are available if the firm’s costs
increase or decrease? Is demand in the international
market elastic or inelastic?
7. Are the firm’s prices likely to be viewed by the host-
country government as reasonable or exploitative?
8. Do the foreign country’s dumping laws pose a problem?

31. Dumping
 In international trade, this occurs when one country
exports a significant amount of goods to another
country at prices much lower than in the domestic
market

32. EXCHANGE RATES – firms must be wary of devaluations;
exchange rate fluctuations affect the performance of local
subsidiaries
HEDGING – purchasing insurance against losses because of
currency fluctuations, firms make use of “forward contracts” or
“swaps”
GOVERNMENT INTERVENTION – various nations introduce
stabilizing measures into financial systems via selective price
controls and price discrimination laws
Financial Issues

33. TRANSFER PRICE – the price paid for products shipped between units
of the same organization when the shipment crosses national borders
so that the correct duties & related fees can be paid
Transfer prices should reflect the prices the subsidiary might
encounter in the open market, also known as “arm’s length prices”
Transfer prices are also used to shift resources within a firm to offset
inflation in country subsidiaries, to support a subsidiary’s local
competitive position, and in other cases for profit repatriation. This has
resulted in accounting firms developing strict guideline for the transfer
pricing process.
Transfer Pricing

34. COUNTERTRADE – transactions in which all or part of the payment is made in kind rather
than cash. Examples are as follows:
Barter The direct exchange of goods/services between trading partners
Compensation Deals Involve payment both in goods and in cash; the inclusion of
some amount of cash makes the deal more attractive to the seller.
Counterpurchases The most typical version of countertrade; two contracts are
negotiated, one to sell the product (which constitutes the initial
agreement) at an agreed cash price, and one to buy goods from
the purchaser at an amount equal to the amount in the initial
transaction.
Product Buy-backs May take two forms; 1) seller agrees to accept some amount of
output as full or partial payment, 2) seller agrees to buy back
some output at a later date.
Offset Deals The seller contracts to invest in local production or procurement
to partially offset the sale price.
Countertrade

35. For the seller evaluating a countertrade proposal, the
following points must be considered:
1. Is this the only way the order can be secured?
2. Can the received goods be sold?
3. How can we maximize the cash portion?
4. Does the invoiced price incorporate extra
transaction costs?
5. Are there import barriers to the received goods?
6. Could there be currency exchange problems if we
repatriate the earnings from sales in a third country?
Evaluating a Countertrade Offer

36. Gray Trade
 Gray trade is the sales of genuine branded goods
through unauthorized channels.
 Gray trade involves shipments from overseas plants
that enter a market via entry points not easily
controlled. Examples include shipments from the
Asian manufacturers who produce for Western
companies and whose products can be diverted to
ports in one country before entering the market
country.
 Gray trade is acute in trade areas where barriers have
been recently dismantled & exchange rates fluctuate,
creating big arbitrage opportunities and “consumer
tourism”.

37. • ECONOMIC CONTROLS – influencing price setting in local markets via
changing shipping prices or by rationing the product
• CENTRALIZATION – forming price-corridors, setting limits for local prices
• FORMALIZATION – standardizing the process of planning and implementing
pricing decisions
• INFORMAL COORDINATION – via articulation of corporate values & culture,
human resource exchanges
Pricing Actions against Gray Trade

38. ETHNOCENTRIC PRICING
One global price, in one currency
PROS: no gray trade
CONS: no local adaptation
$
Ethnocentric Pricing

39. GEOCENTRIC PRICING
One price in each region, common
regional currency
PROS: some coordination, little gray
trade, some adaptation
CONS: not locally adapted
$
YDM
Geocentric Pricing

40. POLYCENTRIC PRICING
Local prices, in local currency
PROS: locally adapted
CONS: not coordinated, more gray trade
DM
$
Y
Y
$
DM
k
k
PP
Polycentric Pricing

41. Although centrally coordinated prices interfere with the
local subsidiary’s ability to target its market, it is necessary
and possible to coordinate pricing at least by regions or
trading areas.
Takeaways

42. To discourage gray trade, which attempts to take
advantage of currency exchange shifts & local price
differentials, companies try to keep prices in different
countries within a narrow band or “corridor”.
Takeaways

43. Transfer prices between a global firm’s plants in different
countries can seldom be used to shift profits but should be
used to motivate subsidiaries & measure performance,
while remaining supportable to local tax authorities.
Takeaways

44. Countertrade, including barter, is a frequent pricing
option in countries with a lack of hard currency,
especially when global financial turmoil puts domestic
currencies under pressure.
Takeaways

45. Global pricing still has to pay attention to basic issues such
as competition, price-quality relationships, & stage of the
product life cycle.
Takeaways

46. 12-46
managing
marketing
©2005 Dr.Gerard Ryan, Universitat Rovira i Virgili.
International Marketing Mix Decisions
Strategic Alternatives in international and
global marketing mix decisions. Managerial issues
International Channel-of-Distribution Alternatives
Home Country
Domestic producer
or marketer sells to
or through
Open distribution via
domestic wholesale
middlemen
Export management
company or company
sales force
Exporter Importer
Foreign agent
or merchant
wholesalers
Foreign
retailers
Foreign
consumer
The foreign marketer or
producer sells to or through
Foreign Country

47. 12-47
Channel Objectives
 Marketing channels exist to create utility for
customers
 Place utility - availability of a product or service in a
location that is convenient to a potential customer
 Time utility - availability of a product or service when
desired by a customer
 Form utility - availability of the product processed,
prepared, in proper condition and/or ready to use
 information utility - availability of answers to
questions and general communication about useful
product features and benefits

48. 12-48
Distribution Channels: Terminology and
Structure
 Distribution is the physical flow of goods
through channels
 Channels are made up of a coordinated group of
individuals or firms that perform functions that
add utility to a product or service

49. 12-49
Distribution Channels: Terminology and
Structure
 Distributor – wholesale intermediary that
typically carries product lines or brands on a
selective basis
 Agent – an intermediary who negotiates
transactions between two or more parties but
does not take title to the goods being purchased
or sold

50. 12-50
Consumer Products

51. 12-51
Consumer Products
 Piggyback Marketing
 channel innovation that has grown in popularity
 One manufacture distributes product by utilizing
another company’s distribution channel
 Requires that the combined product lines be
complementary and appeal to the same customer
http://www.businessleader.com/bl/jul02/piggyba
ckmarketing.html

52. 12-52
Industrial Products

53. 12-53
Establishing Channels
 Direct involvement – the company establishes its
own sales force or operates its own retail stores
 Indirect involvement – the company utilizes
independent agents, distributors, and/or
wholesalers
 Channel strategy must fit the company’s
competitive position and marketing objectives
with in each national market

54. 12-54
Working with Channel Intermediaries
 Select distributors – don’t let them select you
 Look for distributors capable of developing
markets, rather than those with a few good
customer contacts
 Treat local distributors as long-term partners,
not temporary market-entry vehicles

55. 12-55
Working with Channel Intermediaries
 Support market entry by committing money,
managers, and proven marketing ideas
 From the start, maintain control over marketing
strategy
 Make sure distributors provide you with detailed
market and financial performance data
 Build links among national distributors at the
earliest opportunity

56. 12-56
Global Retailing
 Department stores
 Specialty retailers
 Supermarkets
 Convenience stores
 Discount stores and
warehouse clubs
 Hypermarkets
 Supercenters
 Category killers
 Outlet stores

57. 12-57
Global Retailing
Top 25 Global
Retailers in
2002, sales in
Millions

58. 12-58
Global Retailing
 Environmental Factors
 Saturation in the home country market
 Recession or other economic factors
 Strict regulation on store development
 High operating costs
 Critical Question
 What advantages do we have relative to the local
competition?

59. 12-59
Global Retailing Strategies
 Organic
 Company uses its own resources to open a store on
a green field site or acquire one or more existing
retail facilities
 Franchise
 Appropriate strategy when barriers to entry are low
yet the market is culturally distant in terms of
consumer behavior or retailing structures

60. 12-60
Global Retailing Strategies
 Chain Acquisition
 A market entry strategy that entails purchasing a
company with multiple existing outlets in a foreign
country
 Joint Venture
 This strategy is advisable when culturally distant,
difficult-to-enter markets are targeted

61. 12-61
Global Retailing Strategies

62. 12-62
Innovation in Global Retailing
 Innovation takes place only in the most highly
developed systems
 The ability of a system to successfully adapt innovations
is directly related to its level of economic development
 Even when the economic environment is conducive to
change, the process of adaptation may be either
hindered or helped by local demographic factors,
geographic factors, social mores, government action,
and competitive pressures
 The process of adaptation can be greatly accelerated by
the actions of aggressive individual firms

63. 12-63
Supply Chain Definitions
 Supply Chain
 Includes all the firms that perform support activities by
generating raw materials, converting them into
components or finished products and making them
available to customers
 Logistics
 The management process that integrates the activities
of all companies to ensure tan efficient flow of goods
through the supply chain

64. 12-64
Physical Distribution, Supply Chains, and
Logistics Management
 Order Processing
 includes order entry in which the order is actually
entered into a company’s information system; order
handling, which involves locating, assembling, and
moving products into distribution; and order
delivery
 Warehousing
 Warehouses are used to store goods until they are
sold
 Distribution centers are designed to efficiently
receive goods from suppliers and then fill orders for
individual stores or customers

65. 12-65
Physical Distribution, Supply Chains, and
Logistics Management
 Inventory Management
 Ensures that a company neither runs out of
manufacturing components or finished goods nor incurs
the expense and risk of carrying excessive stocks of
these items.
 Transportation
 the method or mode a company should utilize when
moving products through domestic and global channels;
the most common modes of transportation are rail,
truck, air, and water

66. 12-66
Transportation
 Channel Strategy – analyzing each shipping
mode to determine which mode, or
combination of modes, will be both effective
and efficient in a given situation