Products and Services for Consumers Chapter 12 Products and Services for Consumers McGraw-Hill/Irwin International Marketing, 13/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter Learning Objectives The importance of offering a product suitable for the intended market The relationship between product acceptance and the market into which it is introduced The importance of quality and how quality is defined Country-of-origin effects on product image Physical, mandatory, and cultural requirements for product adaptation The need to view all attributes of a product in order to overcome resistance to acceptance

Quality Shift to a customer’s market More choices in hand of customers Increased customer knowledge about the best ,cheapest, quality The customer defines quality The cost and quality of a product are among the most important criteria by which purchases are made

Quality Defined Quality can be defined on two dimensions: Market-perceived quality Safe flight &landing Performance quality to be given to customers ,cost ,time ,seating ,boarding Most consumers expect performance quality to be a given In many industries quality is measured by objective third parties

Maintaining Quality Damage in the distribution chain Russian chocolate because of poor quality and high quality American chocolate (Mars) Quality is essential for success in today’s competitive global market The decision to standardize or adapt a product is crucial in delivering quality

Physical or Mandatory Requirements and Adaptation Product homologation from simple packaging to redesigned Product adaptation dictated by the following requirements: Legal Pepsi change name to Lehare Pepsi Economic Technological Climate

Green Marketing and Product Development Critical issues affecting product development: Control of the packaging component of solid waste Consumer demand for environmentally friendly products European Commission guidelines for ecolabeling Laws to control solid waste Green marketing is a term used to define concern with the environmental consequences of a variety of marketing activities.

Products and Culture A product is the sum of the physical and psychological satisfactions it provides the user. Primary function Psychological attributes The need for cultural adaptation is often necessary, affected by how the product conforms with: Norms Values Behavior patterns

Innovative Products and Adaptation Determining the degree of newness as perceived by the intended market Diffusion Knowledge about product diffusion Foreign marketing goal: gaining the largest number of consumers in the market in the shortest span of time Probable rate of acceptance

Diffusion of Innovations Crucial elements in the diffusion of new ideas: An innovation Which is communicated through certain channels( method of communication) Over time Among the members of a social system Variables affecting the rate of diffusion of an object: The degree of perceived newness The perceived attributes of the innovation The method used to communicate the idea

Five Characteristics of an Innovation Relative advantage Compatibility (with behavior ,norms, Values) Complexity Trialability Observability (clarity of benefits)

Analyzing Product Components for Adaptation Insert Exhibit 12.1 – Product Component Model Exhibit 12.1

Marketing Consumer Services Globally Consumer services characteristics: Intangibility Cant be touched Inseparability Cant be separate from consumption Heterogeneity individually produced and virtually unique Perishability Cant be stored A service can be marketed both as an industrial (business-to-business) or a consumer service

Services Opportunities in Global Markets Tourism Transportation Financial services Education Communications Entertainment Information Health care

Barriers to Entering Global Markets for Consumer Services Protectionism Restrictions on transborder data flows Protection of intellectual property Cultural barriers and adaptation

Brands in International Markets Very important Most valuable resource a company has A global brand is defined as the worldwide use of a 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.

Top Twenty Brands Rank 2005/2004 2005 Brand Value (millions) Change (%) Country of Ownership 1/1 Coca Cola $67,525 $67, 394 0% U.S. 2/2 Microsoft 59,941 61,732 -2 3/3 IBM 53,376 53, 791 -1 4/4 GE 46, 996 44,111 7 5/5 Intel 35,588 33,499 6 6/8 Nokia 26,452 24,041 10 Finland 7/6 Disney 26,441 27,113 8/7 McDonalds 26,041 25,001 4 9/9 Toyota 24,837 22,673 Japan 10/10 Marlboro 21,139 22,128 -4

Top Twenty Brands (continued) Rank 2005/2004 2005 Brand Value (millions) 2004 Brand Value (millions) Change (%) Country of Ownership 11/11 Mercedes-Benz $20,006 $21,331 -6 Germany 12/13 Citi 19,967 19,971 U.S. 13/12 HP 18,559 17,683 5 14/14 Am Ex 18,534 16,723 15/15 Gillette 17,534 16/17 BMW 17,126 15,886 8 17/16 Cisco 16,592 15,948 4 18/44 L Vuitton 16,077 NA France 19/18 Honda 15,788 14,874 6 Japan 20/21 Samsung 14,956 12,553 19 S. Korea

Global Brands The Internet and other technologies accelerate the pace of the globalization of brands Ideally gives the company a uniform worldwide image Balance the benefits of global brand against of loosing the benefits of an established brand Ability to translate the same image for the brand in local market

Summary The growing globalization of markets must be balanced with the continuing need to assess all markets for those differences that might require adaptation for successful acceptance. In spite of the forces of homogenization, consumers also see the world of global symbols, company images, and product choice through the lens of their own local culture and its stage of development and market sophistication. Each product must be viewed in light of how it is perceived by each culture with which it comes in contact. Analyzing a product as an innovation and using the Product Component Model may provide the marketer with important leads for adaptation.

Pricing for International Markets Chapter 18 Pricing for International Markets McGraw-Hill/Irwin International Marketing, 13/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter Learning Objectives Components of pricing as competitive tools in international marketing The pricing pitfalls directly related to international marketing How to control pricing in parallel imports or gray markets Price escalation and how to minimize its effect Countertrading and its place in international marketing practices The mechanics of price quotations

Global Perspective The Price War Setting the right price for a product or service can be the key to success or failure An offering’s price must reflect the quality and value the consumer perceives in the product As the globalization of world markets continues, competition intensifies among multinational and home-based companies The marketing manager’s responsibility is to set and control the actual price of goods in different markets in which different sets of variables are to be found

Pricing Policy Pricing Objectives In general pricing viewed into two ways Pricing as an active instrument of accomplishing marketing objectives The company uses price to achieve a specific objective Pricing as a static element in a business decision Exports only excess inventory Places a low priority on foreign business Views its export sales as passive contributions to sales volume

Pricing Policy Parallel Imports/Gray Markets Occurs whenever price differences are greater than the cost of transportation between two markets Major problem for pharmaceutical companies Exclusive distribution In the US – Gray market for Cars, Watches, cameras etc. – valued at $6-10 billion. Parallel imports develop when importers buy products from distributors in one country and sell them in another to distributors who are not part of the manufacturer’s regular distribution system.

Approaches to International Pricing Full-Cost versus Variable-Cost Pricing Variable-cost pricing – the firm is concerned only with the marginal or incremental cost of producing goods to be sold in overseas markets. Full-cost pricing – companies insist that no unit of a similar product is different from any other unit in terms of cost and that each unit must bear its full share of the total fixed and variable cost

Approaches to International Pricing Skimming versus Penetration Pricing Skimming – a company uses when the objective is to reach a segment of the market that is relatively price insensitive and thus willing to pay a premium price for the value received. Penetration pricing policy – used to stimulate market and sales growth by deliberately offering products at low prices.

Price Escalation (Set-Up) Costs of exporting Price escalation Taxes, tariffs, and administrative costs Tariff – fee charged when goods are brought into a country from another country Administrative costs include export and import licenses, other documents, and the physical arrangements for getting the product from port of entry to the buyer’s location

Price Escalation (continued) Inflation In countries with rapid inflation or exchange variation, the selling price must be related to the cost of goods sold and the cost of replacing the items ,often sold below cost. Deflation (Decrease) In a deflationary market, it is essential for a company to keep prices low and raise brand value to win the trust of consumers Exchange rate fluctuations No one is quite sure of the future value of currency Transactions are increasingly being written in terms of the vendor company’s national currency

Price Escalation (continued) Varying currency values Changing values of a country’s currency relative to other currencies Cost-plus pricing Middleman and transportation costs Channel diversity Underdeveloped marketing and distribution channel infrastructures

Approaches to Lessening Price Escalation Lowering cost of goods Lowering tariffs Lowering distribution costs Using foreign trade zones to lessen price escalation

Leasing in International Markets Opens the door to a large segment of nominally financed foreign firms that can be sold on a lease option but might be unable to buy for cash Can ease the problems of selling new, experimental equipment because less risk is involved for the users Helps guarantee better maintenance and service on overseas equipment Helps to sell other companies in that country Revenue tends to be more stable over a period of time than direct sales would be

Countertrade as a Pricing Tool Why purchasers impose countertrade: To preserve hard currency To improve balance of trade To gain access to new markets To upgrade manufacturing capabilities To maintain prices of export goods

Countertrade as a Pricing Tool (continued) Types of countertrade Barter - Direct exchange of goods of approximately equal value. Not used very often because difficult to find goods of equal value. Assessing value and disposing of goods is also a problem. Counterpurchase or offset trade - Seller gets paid but agrees to purchase goods worth the same amount from the buyer. More flexibility in selecting goods and in assessing value. Compensation deals - Part payment in goods and part in cash. Some cash involved, flexibility in assessing value of goods involved. Product buyback agreement - Seller agrees to accept as payment a portion of the output or buy it back. Technology transfer, quality assurance, and assured payment. Usually developing or newly-industrialized nations.

Administered Pricing Cartels Government-influenced pricing Exists when various companies producing similar products or services work together to control markets for the types of goods and services they produce Example: OPEC Government-influenced pricing Establish margins Set prices and floors or ceilings Restrict price changes Compete in the market Grant subsidies Act as a purchasing monopoly or selling monopoly

Summary Pricing is one of the most complicated decisions areas encountered by international marketers. International marketers must take many factors into account, not only for each country, but often for each market within a country. Market prices at the consumer level are much more difficult to control in international than in domestic marketing. Controlling costs that lead to price escalation when exporting products from one country to another is one of the most challenging pricing tasks facing the exporter. Countertrading is an important tool to include in pricing policy. Pricing in the international marketplace requires a combination of intimate knowledge of market costs and regulations, an awareness of possible countertrade deals, infinite patience for detail, and a shrewd sense of market strategy.