International BusinessInternational marketingProfessor: Marc Arza firstname.lastname@example.org
1. International marketingModern marketing management is based onimplementing a basic strategy by tuning in thedifferent Ingredients of the marketing mix.Both the marketing strategy and the four Psof the marketing mix (Product, Price, Positioning& Promotions) need to be adapted to fit the differentmarket needs.- International market segmentation- Product atributes and international markets- International pricing strategies- Antidumping regulations
2. International market segmentationWhen managers in an international business consider market segmentation in foreigncountries, they need to be cognizant of two main issues--the differences betweencountries in the structure of market segments, and the existence of segments thattranscend national borders. The structure of market segments may differ significantly fromcountry to country. An important market segment in a foreign country may have no parallelin the firms home country, and vice versa. The firm may have to develop a uniquemarketing mix to appeal to the unique purchasing behavior of a unique segment in agiven country.In contrast, the existence of market segments that transcend national borders clearlyenhances the ability of an international business to view the global marketplace as asingle entity and pursue a global strategy, selling a standardized product worldwide, andusing the same basic marketing mix to help position and sell that product in a variety ofnational markets. For a segment to transcend national borders, consumers in thatsegment must have some compelling similarities along important dimensions--such asage, values, lifestyle choices--and those similarities must translate into similar purchasingbehavior. Although such segments exist in certain industrial markets, they are rare inconsumer markets. However, one emerging global segment that is attracting the attentionof international marketers of consumer goods is the so-called global-teen segment.
3. Product atributes and international marketsIf consumer needs were the same the world over, a firm could simply sell the sameproduct worldwide. However, consumer needs vary from country to country depending onculture and the level of economic development. A firms ability to sell the same productworldwide is further constrained by countries differing productstandards.Cultural differences: Countries differ along a whole range of dimensions, includingsocial structure, language, religion, and education.Economic differences: Just as important as differences in culture are differences in thelevel of economic development. Consumer behavior is influenced by the level ofeconomic development of a country. Firms based in highly developed countries such asthe United States tend to build a lot of extra performance attributes into their products.These extra attributes are not usually demanded by consumers in less developed nations,where the preference is for more basic products.
3. Product atributes and international marketsTechnical standards differences: Differing government-mandated product standardscan rule out mass production and marketing of a standardized product.For example, Caterpillar, the US construction equipment firm, manufactures backhoe-loaders for all of Europe in Great Britain. These tractor-type machines have a bucket infront and a digger at the back. Several special parts must be built into backhoe-loadersthat will be sold in Germany: a separate brake attached to the rear axle, a special lockingmechanism on the backhoe operating valve, specially positioned valves in the steeringsystem, and a lock on the bucket for traveling. These extras account for 5 percent of thetotal cost of the product in Germany.The European Union is trying to harmonize such divergent product standards among itsmember nations. If the EU is successful, the need to customize products will be reducedwithin the boundaries of the EU.
4. Pricing and international marketsPrice discrimination: Price discrimination exists whenever consumers in differentcountries are charged different prices for the same product. Price discrimination involvescharging whatever the market will bear; in a competitive market, prices may have to belower than in a market where the firm has a monopoly. Price discrimination can help acompany maximize its profits. It makes economic sense to charge different prices indifferent countries.Two conditions are necessary for profitable price discrimination. First, the firm must beable to keep its national markets separate. If it cannot do this, individuals or businessesmay undercut its attempt at price discrimination by engaging in arbitrage. Arbitrage occurswhen an individual or business capitalizes on a price differential for a firms productbetween two countries by purchasing the product in the country where prices are lowerand reselling it in the country where prices are higher.
4. Pricing and intl marketsCASE: The European car marketMany automobile firms have long practicedprice discrimination in Europe. A Ford Escortonce cost $2,000 more in Germany than itdid in Belgium. This policy broke down whencar dealers bought Escorts in Belgium anddrove them to Germany, where they soldthem at a profit for slightly less than Fordwas selling Escorts in Germany. To protectthe market share of its German auto dealers,Ford had to bring its German prices into linewith those being charged in Belgium. Fordcould not keep these markets separate.
4. Pricing and international marketsPrice elasticity: The second necessary condition for profitable price discrimination isdifferent price elasticities of demand in different countries. The price elasticity of demandis a measure of the responsiveness of demand for a product to changes in price. Demandis said to be elastic when a small change in price produces a large change in demand; itis said to be inelastic when a large change in price produces only a small change indemand.The elasticity of demand for a product in a given country is determined by a number offactors, of which income level and competitive conditions are the two most important.Price elasticity tends to be greater in countries with low income levels. Consumers withlimited incomes tend to be very price conscious; they have less to spend, so they lookmuch more closely at price. Thus, price elasticities for products such as television setsare greater in countries such as India, where a television set is still a luxury item, than inthe United States, where it is considered a necessity. In general, the more competitorsthere are, the greater consumers bargaining power will be and the more likely consumerswill be to buy from the firm that charges the lowest price. Thus, many competitors causehigh elasticity of demand. In such circumstances, if a firm raises its prices above those ofits competitors, consumers will switch to the competitors products. The opposite is truewhen a firm faces few competitors. When competitors are limited, consumers bargainingpower is weaker and price is less important as a competitive weapon.
4. Strategic pricingThe concept of strategic pricing has three aspects, which we will refer to as predatorypricing, multipoint pricing, and experience curve pricing. Both predatory pricing andexperience curve pricing may be in violation of antidumping regulations.Predatory pricing is the use of price as a competitive weapon to drive weakercompetitors out of a national market. Once the competitors have left the market, the firmcan raise prices and enjoy high profits. For such a pricing strategy to work, the firm mustnormally have a profitable position in another national market, which it can use tosubsidize aggressive pricing in the market it is trying to monopolize.Multi-point pricing becomes an issue when two or more international businessescompete against each other in two or more national markets. For example, multipointpricing is an issue for Kodak and Fuji Photo because both companies compete againsteach other in different national markets for film products around the world. Multipointpricing refers to the fact a firms pricing strategy in one market may have an impact on itsrivals pricing strategy in another market.
4. Strategic pricingPricing decisions around the world need tobe centrally monitored. Because pricingstrategy in one part of the world can elicit acompetitive response in another part, centralmanagement needs to at least monitor andapprove pricing decisions in a given nationalmarket, and local managers need torecognize that their actions can affectcompetitive conditions in other countries.
4. Strategic pricingExperience curve pricing: As a firm builds its accumulated production volume over time,unit costs fall due to "experience effects." Learning effects and economies of scaleunderlie the experience curve. Price comes into the picture because aggressive pricing(along with aggressive promotion and advertising) can build accumulated sales volumerapidly and thus move production down the experience curve. Firms further down theexperience curve have a cost advantage vis-à-vis firms further up the curve.Many firms pursuing an experience curve pricing strategy on an international scale pricelow worldwide in attempting to build global sales volume as rapidly as possible, even ifthis means taking large losses initially. Such a firm believes that several years in thefuture, when it has moved down the experience curve, it will be making substantial profitsand have a cost advantage over its less-aggressive competitors.
5. Antidumping regulationsBoth predatory pricing and experience curve pricing can run afoul of antidumpingregulations. Dumping occurs whenever a firm sells a product for a price that is less thanthe cost of producing it. Most regulations, however, define dumping more vaguely. Forexample, a country is allowed to bring antidumping actions against an importer underArticle 6 of GATT as long as two criteria are met: sales at "less than fair value" and"material injury to a domestic industry." The problem with this terminology is that it doesnot indicate what is a fair value. The ambiguity has led some to argue that selling abroadat prices below those in the country of origin, as opposed to below cost, is dumping.Antidumping rules set a floor under export prices and limit firms ability to pursue strategicpricing. The rather vague terminology used in most antidumping actions suggests that afirms ability to engage in price discrimination also may be challenged under antidumpinglegislation.