International Marketing 2009[1]

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International Marketing

Syllabus:

01. Introduction to International Marketing:

02. International Market Research

03. Market Selection & Entry

04. Intl organization

05. Market Coverage

06. International Product decisions

07. International Pricing

08. International Distribution

09. International Promotion

10. International Advertising

Books recommended: 01. International Marketing Chirunilam,02. Global Marketing Management Keegan03. International Marketing Cateora, Graham


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I. International Marketing:

Introduction:For several decades now, global trade has exceeded global GDP. A growing

foreign trade: GDP ratio for many countries means higher %ages of nationaloutput is being sold in foreign countries, for both products & services.Thus whether a country likes or not, they become an international market ifthey deal with the world & want to improve their economies. (Chineseexports were 6% of GDP in 1980, they climbed to 25% by early 2000s).Indian foreign trade: GDP ratio was around 15% for 40 years till 1991. Withliberalization in 1991, this improved to 20% by 1998 and is growing further. In1991, Indian forex reserves were sufficient to meet only two weeks imports, nowIndia is flushed with forex (to the extent that RBI does not want to get involved infollowing bills


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Cost reduction & product quality improvement (bench marking)Resource utilizationGovt strategy

Restraining forces against Intl business:

Nearsightedness of company managementLocal govt restrictions,Social & political opposition (Coca Cola in Kerala, expulsion of Coke & Pepsifrom India in 1970s)Tariff barriersNon tariff barriers (NTBs): Import licensing, canalization of import, quotas, VERs,localization, Administered barriers- consular formalities, safeguards, health /Environ protection / technical standards, customs procedure, forex remittancelaws), trade blocs (Caricom, Nafta, PTA, Ecowas, Asean, Saarc)

International Environment:

Economic,Social,Demographic,Political / govt,Technological

GATT (1948), WTO (1995):GATT WTOAd hoc & provisional Permanent agreements

Contracting parties MembersExisting domestic legislations WTO agreement is binding onsuperceded GATT membersRedressals slow / less efficient Redressal are faster / effective

TRIMS (Trade Related Investment Measures):WTO articles reg local content, trade balancing, forex balancing)

TRIPS (Trade Related Aspects of Intellectual Property Rights):Patents, Copyrights, Trademarks

International Marketing:

Marketing is meeting a customer need through provision of products &services at an affordable price. It also helps create perceived needs.


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Geocentrism(global orientation): World is treated as a single market,standardized marketing mix & branding, aims at meeting cost & customerpressures thru sourcing from lowest cost base and learning across organization.E.g. Global / MNC companies (Unilever, P&G,Coca Cola, Pepsi).

Decisions involved in Intl marketing:1. Intl business decision2. Market selection,3. Entry Mode4. Marketing mix (product, price, promotion, physical distribution)5. Organisation

II. International Market Research:

Information needs & hence areas of research / intelligence:1. Market profile: SPELT (Social, political, economic, legal, and technical)analysis is necessary in choosing potential markets.a. Forex environment: BoP, interest rates, forex rate trendsb. Perspective information: Laws pertaining to patents, contracts, taxes,dividends, minimum standards, tariff / non tariff barriersc. Resource information: availability of human, financial & physical informationsources.2. Market selection / prioritization: (market size, usage pattern, product

suitability, consumption frequency)3. Competition: (Extent of competition, major competitors, their relative SWOT,corporate behaviour, strategies)4. Product profile :( consumer preferences- power/style, fuel economy, sparescommonality in autos, colour, shape, and packaging)5.Price Profile: (prevailing price range / competition prices, trends / practices,distribution mark ups, govt policies / levies, price as a strategic marketing tool)6. Promotion: (media availability / effectiveness, govt regulations, competitivebehaviour)7. Distribution :( Sales / Service, Pattern, channels availability / length)

Information sources:Sources of market info:Human:a. Data available with company, its overseas offices / associates,b. Employees joining from other firms (Lopez GM to VW case),c. Personal contactsd. Direct perception: (monitoring actual usage by customers, finding theirreactions first hand with a direct relatively longer term interaction (Unilever Persil


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Power detergent story in UK, Toyotas pre Lexus LS 400 survey in USA, Fair &Lovely sampling during Kumbh mela).

Documentary:a. Published (print / internet)

b. Unpublished (private circulation)

External sources:In India: Export Promotion Councils / Commodity Boards, India Trade PromotionOrganisation (ITPO), Director General of Commercial Intelligence (DGCIS), StateTrading Corporation (STC), Confederation of Indian Industry (CII), Federation ofIndian Exporters Organisation (FIEO), Chambers of Commerce, Society of IndianAutomobile Manufacturers (SIAM), Export Inspection Agency / Council (EIA/EIC),Indian Institute of Packaging, Exim Bank, ECGC, Consular / Commercialsections of foreign embassies in India Educational & research organizations,Trade fairs / exhibitions. Internet, Competition.

Outside India: ITC Geneva, Commercial sections of Indian missions abroad,Local govt publications, UN & other intl publications, Trade fairs & exhibitions,Competition.Objectives of Market research / intelligence (Market Information System):1. Tracking competition2. Tracking technological developments,3. Tracking changing customer attitudes, tastes & requirements and consequentexisting / emerging opportunities (Benetton example).4. Identifying deficiencies in firms product mix (product, price, promotion,distribution) & relative strengths & weaknesses.

Major areas of market information system:Markets, Product, Pricing, Distribution, Promotion, Consumer behaviour,Marketing environment & trends, Marketing efficiency.

a. Existing market: Requires secondary research or survey of customers

b. Potential market:i. Latent demand survey: A latent demand is a demand which will be generatedif an appropriate product is made available (finding niches). Initial demand is zerofor a new product to be offered to meet latent demand. (Digital camera, faxmachine, metal racquet for tennis)ii. Incipient demand survey: An incipient demand is demand which will emergeif a particular economic / technological / political situation arises. (Demand forentry level cars, sedans is dependant on economy growth, disposable income).

Types of Research:


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Exploratory: Investigative in nature. Usually it is based on secondary data,selected samples / cases.Conclusive: Helps decision making from choices available. It can be eitherDescriptive (case studies, Statistical) or Experimental (in simulated or real

conditions).

Formal Market research:1. Identifying the research problem / objective: A problem well defined is aproblem half solved.What info do I need? Why do I need this info?

2. Conducting a situational analysis: is necessary to familiarize an externalresearch agency with the company / environment and achieve clarity of theresearch problem / objective.

3. Conducting an informal study: Expansion of info from situational analysis byadding info from related associates (customers, dealers, competitors).

4.Developing a research plan:Evaluate cost benefit analysis of the proposed research (monetary & managerialtime costs of the research, expected gains out of research, cost of not getting thedata if research is not conducted)Decide the methodology, time & budget for the research

5. Data Collection:Identify sources of info.

Secondary data: Desk research of already published info from various sources-company info, libraries, commercial federations, customs, internet.

Primary data & survey research: When published data is unavailable, directcollection of info is necessary through individual or group interviews by trainedmoderators. The questionnaire should be:Simple,Easy for respondents to answer & the interviewer to record,Keeps the interview to the point & obtains the desired info

Methods of data collection:1. Observational research: Observing behavioural patterns.This method isuseful for collecting info that potential respondents are unwilling / unable toprovide. It provides info on actual consumer behaviour and a bias can be limited.However info availability is limited and can usually act as supplementary info.(Driving habits of an Indian driver)

2. Survey research: Collection of info by direct contact.


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a. Personal interviewing: Involves individual or group interviewing. This methodis flexible; enables direct info collection / seeking required clarifications / crosschecking. However it is time consuming, needs trained interviewers & is costly.

b. Telephone interviewing: Easy & quick, saves time / cost. However, requiredaudience may not be available on phone / may not easily respond on phone.I/viewer can not observe the respondent while replying.

c. Mail questionnaire: Useful for large number of scattered respondents,economical. However, this excludes the illiterate, possibility of incomplete info, noclarifications available. Response rate is low.

Sampling: Selection of a group from a population that is representative of entirepopulation.Reasons for sampling: Large population, time & cost of survey, unavailability of

qualified interviewers.Types of Probability sample: Random, stratified, systematic, cluster, multistageTypes of non probability sample: Convenience, Judgmental, quota, snowball.The permissible sampling error, desired confidence in the results & standarddeviation are the factors considered while deciding a sample.

6. Analyzing the research data:Demand pattern analysis: an estimation of growth rates for individual productsectors. Generally light industries assume importance in the early stage ofeconomic growth of a country. As the economy grows, heavy industries assumeimportance and a further growth shifts the importance to service industry.

Income elasticity measurement: Relationship of income with demand for a

product / service. Necessities such as food have inelastic demand (spendingdoes not grow much with increases in income). Demand for consumer durablesis more income elastic increases faster than rate of income growth.

Market estimation by analogy: Application of data from an analogousestablished market (country) to the target market (another country). If suchanalogy is to be applied to a target market which is at a different stage ofdevelopment, a displacement time method is applied for estimations.

While deciding on analogy of a market, the following factors must be considered:Similarities & differences in cultural, economic systems,Level of technological development,Differences / similarities in product / service availability, price, quality & othervariables associated with the product / service.

Cluster analysis: Grouping of similarities and differences within a cluster ofmarkets- national & / or regional. This method helps is identifying clusters ofmarkets similar in nature.


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Analysing results depends on the techniques used and assumptions made.Hence the conclusions from a survey can differ.

7. Presenting the research findings:

The presented reportmust relate to the research objective initially identified,the result should be clearly stated & provide a basis for managerial action.

Advantages of an external research agency: Expertise, Objectivity (no bias),Knowledge, Familiarity with the business, Cost efficiency.

Factors which affect global marketing research:Researching different national markets, each of which may have uniquecharacteristics.Relatively small market potential (low profit potential) permits modest researchexpenditure.

In developing countries, the data may be inflated / deflated due to political / otherexpediency.Data gathering techniques and item classifications may differ from one country toanother resulting in problem of comparability of data.Too little secondary data / irrelevant info.

Market Intelligence as a strategic asset:Flow of info within a large organization has a positive effect of marketingdecisions and can change the marketing info system from a support tool to astrategic asset. Info intensity within a firm can help the firm widen theirintelligence and their marketing areas.

Requirements which dictate the need for organized intelligence:1. Latest info, published / grapevine, on market / competitive conditions2. Interdepartmental sharing of intelligence3. Avoiding surprise developments in the market4. Assessment of success of decisions taken5. Measuring competitive pressures6. Availability of useful data base7. Need to ensure regular accessing of data base.


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III. Market Selection & Entry

Market selection process:

1. Identify the objective: Profit / Growth / domestic market constraints /saturation / Competition / Govt policies / spin off on domestic product / Strategicvision.

2.Decide selection parameters:

Considerations:a. Market potentialb. Market accessc. Shipping cost / timed. Potential competitione. Service requirementsf. Product fitg. Channel availabilityh. Labor & other costs, incentives, labor productivity.

3.Preliminary screening: For elimination of the obvious markets/ countries.

General factors:Economy: population, GDP & its sectoral distribution, income distribution, BoP,per capita income, economic stability, estimated growth rate, stability of localcurrency vis a vis hard currency, inflation, govt policy especially regarding trade& payments.Economic policy: regarding industry, foreign trade, foreign investment,monetary policy.Business regulations: licensing, growth restrictions, FDI controls, forex /dividend repatriation controls, bureaucracy and procedures, tax structure /incentives, local content,.Political environment: political stability, main policy agenda of ruling &opposition parties.Ethnic: Ethnic characteristics / differences and their business implicationsInfrastructure: port / airport connectivity, power availability, communication

Hub possibility: (Spore for SE Asia, RSA for Sub Saharan Africa)

4.Short listing: Select a few most attractive markets, based on the objective.

5. Evaluation of short list:Company related: based on the objective of market entryMarket related:


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Specific product related factors (market profiling):Market trends: Existing domestic production, consumption, growth estimates,import and export,Product relevant: Segments, prices, promotion, distribution, govt rules reg

products, import, promotionCompetition: Nature, profile, their strategies / focus areas, SWOTConsumer characteristics: Tastes, preferences, buying pattern, product usageDistributions channels: Characteristics, trade practicesPromotion characteristics: Media, typeIndustry relevant: Govt policy, infrastructure, raw materials availability,productivity, Trade practices.

Creation of a Product-Market profile: 9 Ws:1. Who buys (would buy) our product? (Consumer profile / Potential evaluation /target audience for promotion)

2. Who does (would) not buy our product? (Niche evaluation)3. Which is the need served (or would be served) by our product? (Positioning /promotion)4. Which problem does our product solve? (Positioning)5. Which are the products currently being bought to satisfy the need / solveproblem that is intended to be catered to by our product? (Competition)6. What is the price being paid by the customers for products being bought?(Price band / Segmentation)7. When is our product purchased? (Seasonality / Sales frequency / potentialevaluation)8. Where is the product purchased? (Channels)9. Why is our (or competing

purchased? (Ascertaining product attributes / USP / segments)

6. Visit to the potential market for first hand info

7. Selection of market segment/s for entry:Niche: A market segment ignored by major players, which leaves a void to befilled. Usually smaller firms try to enter thru niches.

Segments: Large / medium / small.

Market Entry Modes:

i. Licensing: An arrangement under which the licensor grants the rights tointangible property (know-how, designs, formulae, processes, patents,copyrights, trade marks, brand names) to the licensee for a specified period inreturn for a know how fee & a royalty from the licensee.(Adopted by firms whichlack resources or are unwilling to commit resources to unfamiliar markets, but


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have a relatively strong brand/ reputation). Mostly pursued by manufacturingfirms.

Advantages:Firm is not required to undertake the risk & development costs for exploring /

opening a new market,Making use of intangible property without actually getting involved in production(lending coca cola name to clothing, celebrity names to perfumes, sportswear).Entry in markets which do not allow product export,Host country govt intervention is least likely,Obsolete technology sold especially to developing countries.Licensee benefits from ready tested technology / brand name.Disadvantages:No control over production / marketing,No learning experience and economy of scale.Loss of control over tangible competitive advantage / possibility of creating

competition (Vespa in India) (This aspect is neutralised thru cross licensingwhere both firms involved have different intangible properties OR thru formationof joint ventures with licensee

ii. Franchising= Licensing + franchisee's agreement to abide by franchisor'sdictat on how to do business. Franchisor may also assist franchisee to runbusiness. Mostly pursued by service sector firms (McDonalds, Pizza Hutt).

Advantages:Company is not reqd to undertake the risk & development costs for opening anew market (franchisee assumes these).Company can quickly build global presence at a relatively low cost (McDonald).Disadvantages:Local profits are difficult to be employed in other markets,Poor quality in one market can affect sales in others (hotel brands- Hilton,Mariott),Difficult to detect poor quality unless a subsidiary is established and ownmanagers are appointed.

iii. Exporting: Most companies start global expansion as exporters. (Overseasdistribution & service network- bajaj example).Also appropriate when:Target markets are not large enough for local production / long term presence isnot plannedHigher cost of production at foreign location (raw materials, infrastructure,productivity)Political / economic risks / FDI restrictions exist in host country.Advantages:Avoids cost of setting up manufacturing in a host country,


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Economies of scale are retained especially while catering to smaller markets,where infrastructure / input supplies / higher cost of production may poseproblems(Sony TVs, Japanese & Korean cars export to US),Low resource commitment / risk.

Good for countries which are either risk prone or have unfavourable laws /conditions for FDI / licensing / contract mfgDisadvantages:Home base may not be the lowest cost location (oil extraction),High Transport cost (esp for bulk products) (Ore export from Goa, crude oil),Tariff / non tariff barriers which make exporting uneconomical,Delegation of marketing to country-wise agents / distributors (who may not beable to do as good a job as the co. does or may have competing productsmarketed under his outfit/ divided loyalties).Remote servicing (spares, technical expertise, warehousing).Limitations on market intelligence.

Limitation of Network development

iv. Piggyback Marketing:One manufacturer distributes his products through another manufacturersdistribution channels. (Also use of lines of credit by govt / exim bank)Advantages:

Active distribution partner makes use of existing channels / idle capacity for extrarevenuesLower cost of distribution for the manufacturer of productDisadvantages:Only complimentary products can do wellVery limited control of product manufacturer on marketing

v. Contract Manufacturing:The intl company undertakes marketing function but contracts manufacturing tolocal firms.Advantages:No commitment of resources for manufacturing,No risks associated with FDIAvailability of idle manufacturing capacities reduce start up delaysCost of procurement is likely to be competitiveLower cost of failureHost country support due to local contracting

Disadvantages:Likely loss of manufacturing profitsNo control over processesBuilds potential competitors


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vi. Management Contracting: Provision of management know how (skills)without equity participation. (Tata Tea in Sri Lanka, Udipi management ofrestaurants owned by non-Udipi owners).Advantages:For the management provider

Income begins immediatelyLow risk (no equity)Utilisation of idle management capacity (personnel) (bench capacity in IT biz)For the client:Management skills / experience are readily available without time lag /expenditure of training own employees

Disadvantages:For the management providerAcquisition of equity / business may not be possible in contract periodPossibility of more profitable utilization of management talent is limited by

commitments already made under contractFor the clientOver dependence on management provider may result in loss of control / inabilityto develop own expertise.

vii. Turnkey Projects: The contractor agrees to handle ALL aspects of a project-setting up, training, successful implementation. Turnkey projects are usuallyundertaken by firms specialising in designs /process & construction know-how &project setting up (common in metal & petroleum refining, chemicals).Advantages:Overcomes FDI barriers / limits (which otherwise would make a marketinaccessible);Lesser risk compared to FDI (esp if nationalisation / political or economiccollapse is feared later on).Disadvantages:Long term presence in a major market (country) is not possible;Selling process know-how means selling competitive advantage & creating apossible competitor

viii. Assembly Operations: Owning assembly facilities in host country (asopposed to owning an integrated manufacturing facility).Advantages:Relatively lower investmentUseful when cheaper labour is available in host countryManufacturing know how is retainedBuy back possible due to lower assembly costsEligibility for lower import duties & hence more competitive pricingDisadvantages:Logistic management assumes greater importanceWorkers do not get to develop manufacturing skills


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ix. Wholly Owned Subsidiary: 100% equity of the local firm is held by theparent firm. The operations can be either green field or by acquisition of anexisting firm.Advantages:

Technological skills are protected (hence high tech co.s prefer this mode),Tight control over local & global strategy,Location & learning experience can be transferred elsewhere.Disadvantages:Must bear the full cost & risk of overseas operations.Acquisitions afford local market knowledge but divergent corporate culture canbe a problem.

Green-field subsidiary: A wholly owned green filed subsidiary is a subsidiary afirm created by building it up from ground (green field).Advantages:

Maintenance of home country organizational cultureDisadavantage: Time taken to implement may result in late entry in the market

Acquisition: The firm acquires an established enterprise in the target market.(80% of world FDI is towards cross border acquisition- Mittal, Thomsonacquisition by Videocon).Advantages:Complimentary core competencies,Brand strengthKnowledge of local conditionsReduced competition / higher market share

Disadvantages:

Divergent work culture of employees of acquired firmOver valuation of acquired equity

When a firm is acquired & thus loses its separate existence due to merginginto the acquirer firm, the acquired firm is said to have merged in theacquirer firm.

x. Joint Ventures: A firm that is jointly owned by two or more otherwiseindependent firms (Maruti-Suzuki) Many firms have 50% share each. Operationalcontrol is shared by parties to the venture.Advantages:Useful when wholly owned subsidiaries are not allowed / favoured by hostcountry govt.Local partners knowledge of market & competitive conditions, culture.If market opening/development costs are high, the same are shared by partnerfirms.Lesser threat of nationalisation / govt intervention (due to local partner).Disadvantages:


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Risk of giving control over technology to the local partner.This form does not give tight / adequate control on local operations for aconcerted global attack on competition (due to diluted equity).Possibilty of conflict / battle between partners for control over venture.

xi. Third country location: Basing operation in a third country to overcomepolitical / commercial (quota, VERs, SEZ benefits, local incentives) / otherbarriers against direct dealing. (RSA via Mauritius, Pakistan via UAE, Taiwan toMainland China thru HK).Advantages:Facilitates trade which is otherwise not possible.When resorted to due to local incentives, it can improve competitivenessDisadvantages:Susceptibility to being alleged as illegitimate / illegal, esp if resorted to for politicalreasons.

xii. Strategic Alliance: refers to cooperative agreements between potential oractual competitors. Such cooperation can be long term, in the form of jointventures (equity participation) or short term contractual agreements to perform aparticular task (Tata & Fiat for use of Ranjangao plant, shared cellphone networks).Advantages:Entry in a new market / better access to market potential (in the face of govtbarriers)Sharing of fixed costs (& risks) in developing a new product (Boeingsdevelopment alliance with Japanese co.s for 767)Bringing together complimentary skills & assets (videocon -Thomson, Birla-AT&T initially in cell phones)Help raise technological standards / know how (Bajaj-Kawasaki, Kinetic- Honda).Disadvantages:A strategic partner may acquire higher skills / technology thru alliance andbecome a competitor in the long term for the other partner (Piaggio-bajaj).One firm gives away more than it receives in terms of profit / knowledge

xiii. Counter trade: An alternate means of structuring an international sale whenconventional means of payment are difficult, non existent or costly (nonconvertible currencies, export credit requirements).

Types of counter trade:

Barter: Exchange of goods / services between two parties without a cashtransaction.Counter purchase: The exporter commits to use part of the export proceeds toimport (purchase) alternate goods from his importer.


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Offset: The exporter commits to use part of the export proceeds to import(purchase) alternate goods from his importer / other sources in importing country(flexibility / choice of products to be imported).Switch Trading: Third party trading of counter purchase credits accrued througha counter purchase deal. The exporter thus sells the counter purchase credit to a

trading house at a discount. The trading house then sells the credit to anotherfirm at a profit.Compensation or Buybacks: When a firm builds a plant in a country (orsupplies know how / equipment / training) and commits to buy back some of theoutput of the plant, a compensation or buyback occurs.

Advantages of counter trade:Counter trade offers a way to finance the export deal when other means are notavailable.(Foreign exchange unavailability)A readiness to offer a counter trade may improve a firms usp.Disadvantages:

Counter trade may result in exchange of unusable / poor quality products beingsupplied.The responsibility of disposing counter traded goods profitably (including addlstaffing at extra cost).Hampers direct trade avenues.Selection of an entry mode would be dependant on the degree & type ofcore competency (technical know how, management know how) held by thefirm, its local & global objectives, target markets, aimed market share, localconditions.

IV. International Organisation:

Factors which dictateformation of an organisational back up forinternationalbusiness:a. Orientation & Commitment of of the company to intl businessb. Size of intl business (related to domestic market size)c. Expansion plansd. Number of products linese. Number of major markets

Types of organization:i. Export Section in domestic marketing dept:Built into the domestic system. All related support functions (service, advt,finance, credit control, shipping) are handled by related domestic depts.


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Advantages:Helpful when export turnover is small, as costs of common functions are sharedby domestic depts.Expansion is easier.Disadvantages:

Due to small size of business, intl business gets a low priority / lack ofcooperation from other depts.Lack of knowledge in domestic depts. regarding requirements of intl markets.

ii. Export department:A separate dept, having an independent identity in the organization. Theorganization of a separate export dept can be tailored to suit marketing / logisticsneeds and can be based on functions / products / geographical areas.Advantages:It can be largely self sufficient and can handle all intl business related mattersfrom resources within the dept without being at the mercy of domestic

counterpart depts.Can be more efficient than an export section of domestic marketing, asspecialists can be employed.Can be more focused on the functions, being a separate dept.No clash of interest / time to be shared between domestic & export functions.The dept can be located at the most suitable location, other than the H.O. of thecompany.

Disadvantages:May face lower priority from other other depts., if the company is not adequatelyoriented towards intl business.

iii. Export Sales subsidiary:A separate subsidiary company, which is wholly owned by the parent company,entrusted with intl business. It buys parent companys products and sellsinternationally. This option is generally adopted when intl business is largeenough. Organisation can be similar to an export dept, with larger strength.Advantages:Independent and focused effort for development of intl businessCan be located in a different country.Can deal in non-competing products.Can derive cost apportionment due to multi product dealings.Being a separate company, tax advantages can accrue.Disadvantages:The subsidiary must be self sufficient and independently accountable for itsperformance.Multi product dealings can bring disrepute to good products due dented companyimage.


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iv. International Division:This mode is often adopted when the function is not only intl trade but it alsoinvolves managing the non-exporting intl market entry modes such as localassly, / manufacture. Its organization can be structured along functions / products

/ areas.Advantages:Can manage all types of intl entry modes.Concentration on intl businessDisadvantages:Coordination with domestic functions (production / R&D)

v. Global Organisation structure:

a.Product based global organization structure:Responsibilities / reporting are divided based on products / product groups. A

foreign subsidiary / unit reports to multiple product division heads at HQ.Useful when the company has diverse product lines, each requiring a certainminimum expertise. (Bayer pharma, agro and engg divisions)

b. Area (geographic) based global organization structure: Head of eachidentified geographical area is responsible for all products in the area assigned.This is generally useful for companies having a narrow product line.

c. Function based globalorganization structure:Head of a function (production, finance, personnel, marketing) at HQ is

responsible for worldwide operations of the company and hence employees atdifferent locations handling those functions report to the functional head at HQ.(e.g. process based structure in mining).

d. Customer group based global structure: Useful when distinctiveapproaches are required for specific customer groups (OEM, defense,aftermarket). Generally possible for narrow product lines.

e. Global Matrix structure: Aims to combine the advantages and overcomedisadvantages of other structures. Cross functional / dual reporting based ongeographical areas and functional areas.

V. Market Coverage:


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From a selected band of countries / markets / segments, the company candecide to concentrate on either:One or very few markets / segmentsAll markets / segments.

Similarly the company may decide to approach all the markets / segments withthe same marketing mix or may offer different marketing mix in each market /segment.

Based on the above, different coverage strategies may be employed.

Concentrated Marketing strategy:This strategy aims at achieving maximum penetration in the targeted market /segment by employing all resources and competencies available.Advantages:Concentrated efforts can enable the firm to offer most formidable opposition to

the competition and yield best results possible in the most lucrative market /segment.Limited resources may be sufficient to take on the market / segment.The firm can offer most suitable product to the target market / segment.The firm can choose markets / segments where domestic products can yield bestresults (or minimum product modifications are necessary for success)A thinly spread effort is avoided.Disadvantage:Over-dependence on only a few markets / segments. (Dr Becks dependence onUSSR).

Niche Marketing:

Concentrated marketing can sometimes take the form of niche marketing.While selecting a niche, it is necessary to ensure that

a. The niche is large enough in volume to be profitableb. It has growth potentialc. Has limited immediate / potential competition.d. The firm has competencies required to establish an edge over existing

competition and defending its presence, once established.Advantages:The firm can exploit the segment which is largely ignored by major marketplayers.Minimum or no competition.No immediate / direct confrontation with major competitors.Better profit margins because of good value addition perceived by the customers.A toehold in the niche can be used as a launching pad for a foothold in othersegments (ethnic products, 3W in SL for bajaj, Indian restaurants in UK).

Disadvantages:A successful, profitable niche operation attracts competition.


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Many larger firms are adopting niching as a strategy.

Undifferentiated Marketing strategy:Treating a whole market as a single unit having homogeneous customercharacteristics. The entire market is sought to be tapped with a single marketing

mix. Works well for basic products (oil, steel, chemicals, minerals).Advantages:A single marketing mix / limited product offering serves a large market audience.Disadvantages:Can not serve multiple segments.

Differentiated Marketing strategy:Involves segmentation of the market & designing of the right marketing mix foreach segment. Most suitable for heterogeneous markets.

Market Segmentation: refers to identifying distinct groups of consumers whose

purchasing behavior differs from others in important ways.Markets can be segmented in numerous ways:Geography (continents, sub continents, even geographical sub division of largecountries like India, USA),Demography (population, age groups, sex, religion, income groups)Social / cultural factors / occasionsPsychography (life style, social class)Consumer (OEM, after market, defense, industry)

A market segment should be:a. Measurable (in terms of size / potential)b. Substantial (large enough to be profitably tapped)c. Differentiable (in terms of characteristics which demand a separate marketingmix)d. Accessible & actionable (through a specific marketing mix)

A firms goal should be to optimize the fit between the purchasing behaviorof a segment & the marketing mix so as to maximize sales to that segment .

VI. International Product decisions:

Product strategy involves decisions regarding the product mix, positioning &communication.


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Product planning involves product strategy plus product planning.

Product management involves decisions regarding product planning,development and strategies during different stages of product cycle.

Product decisions:1. Market segment decisions: Identifying segments for targeting andpositioning of products2. Product mix decisions: Types of products and variants for each targetsegment.3. Product specifications: Technical specs, styling, shape, size (aesthetics),packaging, labeling.4. Product positioning & communications: Image projection for the product inconsumers mind and development of an appropriate communication. (Toiletsoap can be positioned as beauty soap, health soap, skin care soap, deo soap,baby soap. Beefeater gin as a low cost gin in UK but fetches premium price in

US due to positioning).

Product: A set / bundle of tangible physical attributes assembled in anidentifiable form, with a commonly understood descriptive name (apples,oranges, fridge, and salt).A brand name helps a broader recognition as a separate product.

Levels of product:

Core product: Most fundamental level of the product. It refers to the core benefitderived by the consumer from the product. (A motorized 2 wheeler, fridge).A core product in one country may assume a different core value in another (beeris common drink in Australia & Germany but an alcoholic drink in India andbanned in Islamic countries) and hence calls for appropriate modifications in theproduct & positioning.

Tangible Product: The actual form, with all its attributes, in which a product isoffered to the consumer, with an identifiable brand name, specs, features,packaging. (Honda, Toyota, Mercedes, BMW for cars, Sony, Onida, Videocon,Samsung for TVs). Modifications are necessitated in the tangible product in manymarkets to be acceptable (homologation of vehicles in Europe, US, Australia).

Augmented product: refers to the additional services / benefits offered with theproduct (warranty, installation, free service, credit facility).

Product Mix: The entire range of all products offered for sale by a company.(Commercial vehicles, jeeps, cars by Tata, scooters, m/cycles, 3 wheelers byBajaj).Product line: A group of products which are closely related because they servethe same segment, are marketed thru the similar outlets or fall within a given


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price range. (Mopeds, scooterettes, dirt bikes, SUVs, tractors). A product mixmay consist of one or more product lines.

Width of a product mix refers to the number of product lines in the mix

Depth of a product mix refers to the average number of products by thecompany in each product line. (Honda, Yamaha Suzuki m/cycle line up in intlmarkets via avis Indian or Chinese manufacturers)

Consistency of a product mix refers to the extent to which different productlines of a company are closely related to each other in terms of end use,production, distribution and any other ways. (Car range of Maruti in India).

Product Life Cycle:A product normally passes through the stages of Introduction, Growth, Maturityand Decline. (Mopeds, scooters in India, telex-fax-email, VCP-VCR-DVD)

Introduction stage:Low sales due to a relatively unknown productHigher effort / promotion / cost per unitLow profits / losses due low sales & high per unit costsLow or no competition for a technically new productGrowth stage:Fast growing sales due to higher consumer acceptanceGrowing profits due economies of scale and lower per unit costsIncreasing competitionMarket segmentation and introduction of product variants.Maturity stage:Saturation is sales volumeIntense competitionFalling profits due to higher promotional / sales costs per unit.Decline stage:Entry of new competing productsDecline in sales and profitabilityExit of some firms

If a product is launched internationally, it may be at different stages of PLC ineach market. Thus, such international deferred launches may actually help deriveincremental export sales for a product and extend its growth & maturity stages inthe domestic production.Vernons PLC theory describes how a new product is initially marketeddomestically, then exported, produced in lower cost bases and ultimatelyimported in the country of invention.

New Product Development:


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Types of new products

Innovative product: Entirely new to the market (hydrogen fuel vehicle, CNGvehicle).Innovative product development involves a lot of expenditure in basic research

and perseverance by the company. It is challenging, expensive and risky but therewards are enormous (HP in printing technology, Apple, Microsoft in s/w, Sonyin entertainment electronics)

Significantly modified product: A significant modification in the existing productavailable in the market. (digital camera, blue tooth, ipod, blue berry).Significant product modifications also involve a high expenditure on R&D andproduct innovation.

Copy of the existing product: Similar / same type of product currently offeredby competition (cell services offered by idea, airtel, hutch; reverse engineered

products). Copying / reverse engineering is relatively less expensive but canattract patent & copy right issues.

Stages of new innovative product development:

1. Generation of product idea: through contributions from companys sales &marketing staff, researchers, consumers, competition.2. Evaluation & Selection: of workable product ideas.3. Concept testing: Conceptualizing the product, its suitability to the consumerand manufacturability.4. Business feasibility: Commercial feasibility in terms of tooling,manufacturing, marketing, servicing costs, sales potential and profit potential,profitability.5. Product development: Decisions regarding specifications, target costs /price, proto typing & testing, tooling development.6. Test marketing: Test marketing in select markets, feedback collection,debugging.7. Commercialization: Full scale introduction to the market. Pertinent decisionsare: when to launch, where (places/markets) to launch, whom to target, how tomarket (promotion).

Branding:Brand: A name / sign / term / symbol / design or a combination of some / all ofthese intended to identify the goods / service of a seller & to differentiate himfrom those of others.Brand name: Vocalized part of a brand.


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Trade mark: Legally protected brand name / symbol.

Branding decisions:1. Whether to brand: Branding is expensive and risky, although it offers distinctadvantages. Unless a large market presence & identity is aimed at, branding may

not be undertaken by a firm. There is increasing acceptance reported in somelarge markets for non-branded goods, in favour of price-quality-utility parameters.

2. Manufacturers brand or private brand:A manufacturer may use his own brand name for his products or may useanother manufacturers / distributors brand name (private brand). Someexporters may find it useful to use private brands till their products areestablished in a foreign market or the branding cost is justified. (Mitsubishi, bajajfans, bicycle brands).

3. Same brands or different brands: The brand used in the domestic market

may or may not be used in foreign markets & vice versa (Zen & Alto). Similarlybranding may have to be differed from one market to another (Pajero & Montero).

4. Global brands: Make it easy to promote products in new markets andgenerate revenues / profits at an early stage of business (Nike, Reebok, Pepsi,coke, McDonalds). Require lower promotional expenditure and provide acompetitive edge over the competition. The products offered under globalbrands, however, may be different in various markets.

Problems of branding in intl marketing:1.Heavy cost of branding, brand registration and protection.

2. Foreign distributors / collaborators prefer to promote their own brandlocally & are reluctant to use manufacturers brand (auteco bajaj) or stipulate ajoint brand name.3. Cultural / language factors may hinder marketing under a foreign brand (bajain Spanish speaking countries).4. Unauthorized brand / trade mark registrations result in recovery / ransomexpenses for the manufacturer.5. Some countries do not allow foreign brands (unless accompanied by localbrands).

Indian firms may take following routes to branding in overseas markets:Use Indian brand in niche marketingUse Indian brand name for export to distributors who do not have their own brandSimultaneous use of Indian brand name alongwith unbranded exportsBuy foreign brands through acquisition / allianceMixed brand names (Tata Tetley, DHL-Danzas)Consortium approach (EPC, Commodity board branding).

Packaging & Labeling:


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Packing is protective covering of the product for transportation to the consumer.Packaging includes attractive and adequate presentation to the consumer apartfrom adequately covering packing needs. In intl markets, packaging has to takeinto account different tastes, preferences, regulations, practices.

Export packingshould be:Capable of withstanding multiple handling & transport by different modesEasy to handle with standard equipmentAdequately marked for identity (and contents, if required)Easy to dispose offShould meet buyers requirements.Should provide easy access for examination of contents

Functions of packaging:1. Protection of the product through multiple handling

2. Preservation of quality of product (especially food products, medicines etc)3. Presentation to the consumer in terms of attractiveness, adequacy of productand regulations related info, self promotional abilities.

Packaging has assumed increased importance because of increases reliance onself service by consumers (malls), consumers willingness to pay extra foradditional convenience, enhanced appearance / identity and integratedmarketing approach of companies which tries to provide an identity distinction totheir products.

Basic factors which affect packaging decisions:

Product characteristics: Nature, state, weight, volume, fragility, susceptibility to

temperature changes, moisture, chemical changesCost of packaging:Convenience: easy to open /close, identify, recycle, distribute, dispenseStatutory requirements: minimum product specs, minimum packingrequirement

Special packaging considerations in intl marketingRegulations: Language, coding, marks, packaging standards.Buyers requirement: (Corona shoes case)Socio-cultural factors: Colors taboos, signagesRetailing characteristics: distribution through malls / small retailers /restaurantsEnvironmental factors: Disposability of packaging, recycling.

There have been several instances where a good or even a better product hasnot done well due to less attractive / inconvenient packaging. (USSR electronicgoods in the past, Indian pickles, spices in the past, success of pet bottled softdrinks with slightly higher quantity than the glass bottle).


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Three most important considerations which will continue to dominatepackaging decisions are safety, convenience and environmental impact.

Labeling:

Labeling is considered a part of packaging.The considerations of designing labeling are:Statutory requirements such as manufacturing & expiry dates, broadformulation, bar coding, MRP, warnings (on cigarette packs) (protein, calories, fatcontent in food items, constituents and dosage for medicines)Language (local language for promoting understanding / sales)Attractiveness & info provision to act as self promotional means (esp. for shelfsales in malls).

Business environment & product strategies:A product which is successful in one market may not succeed in another intl

market because of a different business environmental factor such as:Usage pattern (tea in Japan, India and Iran, cake as dessert pastry in US but asa tea accompaniment is UK & India, 2W as means of transport in developingcountries & as a fun vehicle in Europe),Tastes (pizza toppings in Asia),Preferences (power & styling for cars & 2W in Europe but fuel efficiency andspares commonality in India)Social factors (no ham or beer in Islamic countries, no beef in India, blackcolour not preferred in India, requirement of scarf for ladies in Iran, lowrequirement of toilet papers in Indian subcontinent).Infrastructural differences (left hand drive, 110V supply, NTSC system)

Legal requirements(homologation, product liability)

Consequently, product decisions should be based on the target markets and theirspecific requirements.

Product strategies:

Product extension: The product marketed domestically is offered in foreignmarkets without any significant modifications due to convergence of usage,preferences and absence of any additional legal / statutory requirements (3W inSL, Bdesh, curry powders to ethnic customers abroad).

Product adaptation: The product marketed domestically is modified for foreignmarkets due to differences in:Consumer tastes & habitsConditions of use (car for racing, high altitude, gasohol)Usage (mountain bikes)Purpose of use (satisfaction of a need) (Maybach, Rolls Royce Phantom forstatus statement)


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Culture (hamburger in Islamic countries)Environment (weather, infrastructure)Regulatory requirements (homologated vehicles; warning labels in locallanguage)Positioning (income levels- beefeater gin in USA)

Competition (tall boy design for Zen Estilla)

Product development:

An innovative product: serves an unserved need or serves a need better thanan existing product (digital camera, blue berry cell)An imitative product: A product similar to the product/s being offered bycompetition but with an edge over competition in some ways (features, price,distribution). (cell ph with a camera, headphones / hands free).A significantlymodified product: which is a major departure from the existingproduct/s but may or may not be an innovative product (Zen Estila, Swift as anEuropean design, initially Santro shape was not liked)Product Communication strategies:Straight Extension: One product, one message, worldwide. Same product isoffered in all markets with the same message. (Pepsi, Harley Davidsonm/cycles).Advantages:Economies of scale achieved / maintained for the productNo addl R&D expenditureNo addl expenditure on commercials / promotional materialDisadvantages:Unsuitable when marketing environment is differentUnsuitable when end use of the product is differentProduct extension, communication adaptation: Same product offered in allmarkets but is positioned differently in different markets with a suitably modifiedcommunication (beefeater gin in USA, pizza as an upmarket item in India, appamas hoppers of different types).Advantages:Economies of scale achieved / maintained for the productNo addl R&D expenditureAdaptation of communication results in better market yieldDisadvantages:

Cost of communication developmentProduct adaptation, communication extension: Communication used indomestic market is extended to other markets but the product is modified forforeign markets. (McDonald, Hamburger).Advantages:Increased product acceptanceDisadvantages:


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Cost of R&D, tooling etc for product modificationsEconomies of scale may not be achieved, if market volume is not large enoughDual adaptation: Both the product and communications are adapted for foreignmarkets (Indian Cuisine in Europe / USA, dirt bikes, mountain bicycles).

Advantages:Adaptation of product & communication results in better market yield in eachmarket (benefits of customization)Spin off on domestic product in some casesDisadvantages:Cost of R&D, tooling etc for product modificationsEconomies of scale may not be achieved, if market volume is not large enoughCost of communication developmentProduct Invention:Advantages:

Can open an entirely new segment with market leadershipHigh profitability due to tech edge, patenting, know how transfersDisadvantages:Costs of market researchCosts of R&D and productionisationCosts of promotion and market developmentRisks associated with product failureChoice of product and communication strategy depends on:Product defined in terms of needs servedMarket defined in terms of conditions of use, consumer preferences andpurchasing powerCosts of product & communication adaptationGlobalisation has caused a certain degree of homogeneity in products thruconvergence of consumer preferences, their willingness to spend forconvenience and also adherence to international product standards.Therefore, one school of thought proposes standardisation of products &communication to achieve cost efficiency and meet the consumers primaryrequirement of'reliable product at low price'.However, thoughtless globalisation of product & communication can bedisastrous because despite the recent globalisation, characteristics ofindividual markets remain very distinct and unless these are accounted forthrough a reasonable measure of localisation, the product may fail (Unilever andP&G products are formulated and communicated differently in each market).


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VII. International Pricing:

Price is the only revenue generating factor in the product mix and can beeffectively used as a marketing tool.Price is administered based on market forces. It may not always cover costs,although cost is the most important consideration in pricing.

Exporters costs:

Apart from costs involved in domestic marketing, exports need to take intoaccount additional factors such as addl packing / packaging, documentation,forwarding, shipping, distribution mark ups etc.

Types of costs: a. Production costs; b. Selling & delivery costs.

Production costs: a. Fixed costs; b. Variable costs.

Fixed costs (indirect costs):Costs which remain fixed irrespective of level ofPlant output (production). Land buildings, machinery, tooling, installations,security and maintenance are some examples of fixed costs.

Average fixed cost is fixed cost distributed per unit of production. Hence, higherthe output, lower is the average fixed cost.

Variable costs (direct / primary costs): Costs which vary with the level of plantoutput (production). Raw materials, labour, consumables like electricity areexamples of variable costs.Average variable costs may vary with different levels of production.

Total cost= Fixed cost + Variable costs

Selling & delivery costs: Costs incurred for functions other than production

costs, Additional packing, forwarding, transport, documentation, externalinspections, cost of finished goods inventory, insurance, traveling for marketing,promotional expenditure, in-built mark ups are some examples of selling &delivery costs.

Pricing objectives:1. Market penetration2. Market share


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3. Market skimming4. Fighting competition5. Preventing new entry6. Shorten payback (due to uncertain market, short PLC, political situation)7. Early cash recovery

8. Meeting export obligations9. Plant capacity utilization10. Surplus disposal11. RoI & profit maximization.

Factors which affect intl pricing:Marketing objectiveCostsCompetitionProduct differentiationExchange rate

Market profile (demand pattern, disposable incomes, local marks ups, trademargins)Image of firm (high end niche, low price product)Govt policies (floor / ceiling prices, distribution mark ups)Govt subsidies / incentives, tax exemptions / concessions, tax reliefGovt restrictions (trade agreements, VER / quotas, homologation / safetystandards, pre-shipment inspections)Import duties in target market

Pricing approaches:

Cost based pricing:Cost plus pricing.

Price= Fixed cost + Variable costs + marketing & distribution costs + any othercosts + desired profit margin incentives / subsidies.Advantages:Covers all costs & ensures desired profit marginSimple method widely employed.Disadvantages:If there is a change in actual variable costs than assumed, the profitability isaffected.If costs are higher than competitors costs (due to various factors includinginefficient working / lower productivity), the firm is rendered uncompetitive.With profit level pre-determined, opportunity of higher profit may be lost outIgnores price elasticity of demandMay not help market penetrationNo flexibility.

Market oriented pricing:Flexible pricing based on market conditions (what the market can bear).Advantages:


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Allows flexibility and is responsive to market conditionsSuitable for short PLCDisadvantages:Leaves room for speculation regarding what is the right price in a certain marketcondition

Different price levels in different markets can lead to grey market (re-imports).May not always yield desired profit

Following the market leader:Setting the price higher / lower / equal to market leaders / competitors price.Advantages:Simple method which follows the market trendsDisadvantages:Competitors costs, pricing objectives, reasons for a price changes may bedifferent / divergent.

Negotiated pricing:Usual employed for Govt / tender purchases.Advantages:Accommodates both the seller & the buyerFlexible.Disadvantages:A weak bargaining seller may not get a good price

Customer determined price:Customer provides the target price and buys if the seller meets the expectation.Advantages:Accommodates both the seller & the buyerDisadvantages:No flexibility for the seller, even if variable costs vary.

Break even pricing:No profit no loss pricing.

Break Even Point (BEP) is derived by appropriating total cost on apredetermined quantity, without any profit margin. Hence if the price or quantityare lowered, the seller makes a loss and vice versa.

Calculation of BEP:

1. In terms of units of product:

BEP (units) = FC / (SP - VC).

FC=Fixed cost (total), VC=Variable cost (per unit), SP= Selling price (per unit)


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Example:FC=Rs.200, 000/-, VC=Rs.2/- per unit, SP=Rs.4/- per unit

BEP (units) = 200000 / (4 2) = 100,000 units.

2. In terms of sales revenue:

BEP= SP x FC / (SP VC)

FC=Fixed cost (total), VC=Variable cost (per unit), SP= Selling price (per unit)

Example:FC=Rs.200, 000/-, VC=Rs.2/- per unit, SP=Rs.4/- per unit

BEP (rev) = 4 x 200000 / (4 2) = Rs.400, 000/-

Calculation of break even price for a target quantity:

Break Even price = (FC + VCxQ) / Q

FC=Fixed cost (total), VC=Variable cost (per unit), Q= targeted output in units

Example:FC=Rs.200, 000/-, VC=Rs.2/- per unit, Q= 100,000 units.

Break Even price = (200,000 + 2 x 100,000) / 100,000 = 4 per unit.

Calculation of price with a predetermined profit over break even price for atarget quantity:

Break Evenplus price = (FC + VC x Q + P) / Q

FC=Fixed cost (total), VC=Variable cost (per unit), Q= targeted output in units,P=desired profit

Example:FC=Rs.200, 000/-, VC=Rs.2/- per unit, Q= 100,000 units, P= Rs.50, 000/-

Break Evenplus price = (200000 + 2 x 100000 + 50000) / 100000 = Rs. 4.50per unit.

Marginal cost pricing:This method is adopted at times when there is idle production capacity which isutilized through an additional order. In this method, the fixed cost is not includedin the pricing for meeting a requirement of quantity (because the fixed cost would


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be incurred anyway without that qty or it may be recovered in the domesticpricing).If the marginal price is substantially low, it can enable the firm to either adopt anaggressive pricing vis a vis the competition or spend heavily on promotion.Advantages:

Marginal pricing makes the firm price competitive, helps in market penetrationand market shares.Disadvantages:Can be adopted only when idle capacity exists.Limitation in case of EOU / SEZs where balancing fixed cost on domestic base isnot possible.An initial low price may be difficult raise to restore cost plus pricing.

Transfer Pricing: Prices of goods transferred from a companys unit in onecountry to its unit elsewhere (in another country) is known as intra-company oftransfer pricing.

Benefits:Attracting lower tariff duties in higher tariff countries through minimal pricingReducing income tax outgo in high tax countries through overpricingFacilitating dividend repatriation when it is curtailed by govt policy

Limitations:Tax / tariff enforcement authorities can impose penalties for lopsided transferpricingVery low transfer prices would affect profitability result of a production unitVery high transfer price may make a foreign operation look less profitable

Basis of transfer pricing can be:

Local Manufacturing Cost plus standard mark upMfg Cost of the most efficient unit in company plus a standard mark upNegotiated pricesSame price as quoted to independent customers.

Dumping:Products sold below cost of their production in a foreign market OR selling goodsin a foreign market below the price of same goods in the home market.If the price is above the home market price, it is referred to as Reverse dumping.

Sporadic dumping: Resorted to occasionally to dispose off excess inventory.

Intermittent dumping: Selective / periodic dumping as a strategic measure togain a foothold in a market / drive out (or inflict losses) to competition.

Long period dumping: Resorted to mainly for full capacity utilization andlowering of average costs.


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Dumping is dealt with strongly by govts if it affects local players. However, itrarely is an issue when world market is strong for a product / commodity.

Retrograde pricing:

Working back from a target price to ascertain profitability.

Pricing process:1. Define price objective2. Market analysis (competition, potential)3. Cost calculation (all costs)4. Cost relief estimation (incentives, tax benefits, concessional finance)5. Target price & export feasibility.

Creation of a price structure: Enables visualization of all costs involved andtarget price to the customer, comparison with competitors comparable costs and

identification of possible areas for cost reduction.

Specimen Cost plus export pricing structure for an Indian exporter:

1. Ex-factory cost of the product (inclusive of normally apportioned fixed cost,variable cost, overheads)

2. Manufacturers Profit margin

Serial 1 + 2 = Domestic ex factory price

3. Additional export related costs:

a.Cost of any addl components required for product conformity in foreignmarket

b. Additional export packing & marking.

c. Export documentation (consular invoice, legalization charges, cert of originfees, proof of export documentation for bond / export obligations discharge,procurement of import licenses for export related material, membership chargesof EPC)

d. Cost of external inspection, if any

e. Additional financial expenses:i. Establishment of bid bonds, bank guarantees in case of tendersii. Banks charges for LC advising / confirmation / negotiation / collection,iii. Claiming exemptions of excise duty,iv. Recovery of duty draw back & other applicable incentives


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(Conversion of Indian Rupee C&F or CIF price in hard currency: With amargin for currency fluctuations based on:i. Period of validity of quotation for shipments (period over which all committedshipments will be completed),ii. Period of validity for the quotations received from the carrier for freight and

insurer for transit insurance,iii. Trends in forex markets for the hard currency used for quotation)

7.Expenses at destination:i. Unloading at destination, destination port chargesii. Import duties, taxesiii. Foreign CHAs fees & clearing expensesiv. Transport to inland ICD, if applicablev. Transport to importers warehouse

Serial 6 + 7 = Landed price

8. Foreign cost additions:i. Importers costs (landed cost, finance, forex fluctuations if applicable,warehousing, local transportation, repacking if required).ii. Importers mark upiii. Distribution chain mark up (Wholesaler, Distributor, Dealer, Sub-dealer)

Landed price + serial 8 = Price to end user

Information heads for pricing decisions:

Market:Major segmentsExistence of products identical / similar to companys productSignificant and smaller competitorsMarket potential & growth prospects

Competition:Products on offerNeeds satisfied / not satisfied by the existing productsMarket sharesFinancial strength & behavioural pattern

Prices:Prices of competing productsPrice elasticity of demandPrice leader in the market

Govt Policies:


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Influence on productInfluence on competitionInfluence on prices / profitability

Costs:

Production levels / impact on costsComparison with competition

Profitability:Sales volume profit relationshipProfit margin of company and competition.

VIII. International Distribution:

Entry into a market may not necessarily assure market penetration. For marketpenetration and market shares, an effective distribution channel is necessary.

Distribution channel is the set of firms & individuals that takes title to/ assisttransfer of goods / service as it moves from the producer to the consumer.

Distribution Patterns:

General pattern:

Middlemen services: Service attitudes of wholesalers & retailers vary fromcountry to country. When margins are low, both try to offer extra servicesto attract the consumer. When middlemen are reluctant to promote aparticular product, the producer needs to offer extra inducement to themiddlemen or undertake much of the promotion & selling effort himself.

Line Breadth: is the range of products handled by the distribution line.Every country has a distinct pattern of line breadth.In some countries the middlemen can get / carry any product (groceries, generalmerchants in India) (broad line) whereas in other countries they carry a muchspecialised narrow range (optical shops, surgical supplements, bakery, sweetsshops in India).Govt regulations can limit the line breadth (arms dealer, liquor shopsrequiring licenses, prescription medicines can not be sold except in authorizedmedical shops in India).


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Costs & Margins: Middlemen margins depend on the level of competition,services offered, efficiencies / inefficiencies, market size / turnover (bajajdealer margin in waiting list days), geographic factors (remote area),purchasing power of the middleman, tradition. (Low prices & margins inIndian cities v/s higher of both in rural area).

Channel Length: Usually the channel length is shorter for industrial or highpriced consumer goods than for low priced products (vendors to industries, auto& white goods dealers). Generally channel length is inversely proportional tosize of purchase.

Informal channels: Channels like street markets (hawkers, pan shops) can offermuch wider market penetration than formal distribution system (they can sell atlower prices than established retailer). These can be added to the formalchannels, where effective.

Blocked channels: Some channels are blocked for new entrants to the market,either by competitors already established lines, cartels, trade associations.(Petroleum distribution in India).Stocking: High cost of credit, loss due to inflation /exchange risk, lack of capital,lack of floor space for smaller outlets force the foreign middlemen to limit theirinventories. This often results in stock-out and resultant loss of sales tocompetition. Physical distribution lags add to this problem. Hence, producersneed to exercise, ingenuity, pressure & provide assistance in terms of credits forthe middlemen to maintain a desired minimum level of inventories.

Power & competition: Strong distributors who supply to a large number of smallmiddlemen finance downstream and command allegiance of the channelmembers to wield considerable power to block the existing channel to outsiders& make them use less effective channels.

Retail patterns are an important factor in channel selection:Retailing has a much greater diversity than distribution in terms of Linebreadth. Some outlets are very narrow breadth specialized outlets (boutiquesselling specialty clothes, pan shops in India, home stores in USA, bed & bath,Toys R us, Babies R us) whereas at the other end of spectrum there are broadline outlets (like supermarkets, departmental stores general stores in India).

Number of retailers & the average number of customers served by a retailervaries largely. (702000 outlets in USA with 395 customer/outlet, 21.2 mn outletsin China with 61cutomers/outlet, 93000 outlets in RSA with 482 customers /outlet).While large retailers like supermarkets can be accessed easily, it is difficultto reach the small retailers without an effective channel. The trend now worldover is to have more broad line, large outlets- departmental stores,Supermarkets.


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Channel levels:Zero level channel: Direct from producer to consumer (mail order, internet, doorto door, producer's own retail outlets)One level channel: one intermediary (agent / retailer)

Two level channel: two intermediaries (Wholesaler / distributor, retailer)Three level channel: three intermediaries (Wholesaler / distributor, dealer,retailer)

Types of channels in int'l marketing:International: between / across nationsIntranational: Within a foreign market

Types of middlemen:1. Those who take title of the goods;2. Those who assist transfer to the title of goods.

Domestic middlemen:1. Merchant exports (indirect exports) through transfer of title:Traders,Subsidiary company of producerGlobal retailersPiggybackersForeign buying offices

2. Without transfer of title:Domestic agents / brokersExport Management companiesCooperative Exporting organisation (piggyback, EPCs, commodity boards, STC)Foreign middlemen:1. Agents2. Manufacturers representatives3. Managing agent / companies4. Importer5. Distributor6. Wholesaler7. Retailers (malls)8. Govt depts, State Buyers (STC, MMTC, Avtoexport)9. Joint venture / licensee / franchiseeFactors which influence channel selection:1. Product profile (industrial, domestic, perishable, service requirements,technical complexity)


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2. Market & customer profile (mkt size & location, no. of customers & theirgeographical spread, purchase pattern, frequency)3. Middlemen profile (functions undertaken, fin strength, line width, margins,length of channel, controls, terms of sale, channel ownership)4. Producer profile: Firms size, fin strength, product mix, mktg objectives,

financial commitment to development of distribution5. Competition profile; Channels employed & their effectiveness, swot6. Market environment: Economy, govt policies, social / cultural factors

IX. International Promotion

Communications to the target consumer and the distribution channel areparamount to success of a product / service. Promotion is an effective tool ofcommunication which is mandated to highlight the reasons for which consumersshould buy a product and channels should distribute the product.

Communications are used to achieve any / all of the following :Creation ofproduct awareness with potential consumerPersuasion of consumers by highlighting benefitsMotivation of consumer through incentives

Reassuranceof consumers post purchase dissonance

Product information to channelsMotivation of channelsPromotion of image of product / companyPromotion of image of country

Stages of communication development for intl market:1. Identify the target audience (income group, demographic group) (students,farmers, celebrities).2. Identify the objective (consumer education for demand generation, fightingcompetition, product resurrection).3. Finalize the message for:The content (what is to be conveyed)Logical sequence (structure)Presentation (format)Source (who would generate the message)4. Budget the expenditure (methods: affordable, as a percentage of salesrevenue, similar to competitors, based on specific objective).


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5. Decide the communication mix (advertising, sales promotion, personalselling, PR).

Advertising: is a non-personal presentation & promotion of ideas, products andservices.

Types of advertising:Mass media: TV, Radio, theatres, print (newspapers, magazines)Direct: Mailers, Sales literature, samples, Door to door.

Sales promotion: Concentrated drive (short term) to promote sale of a product /service. (Trade fairs, exhibitions, discount weeks, gifts).

Public Relations: These exercises are aimed at creating & maintaining company/ product image / goodwill. (Used by companies, EPCs, commodity boards,institutes).

Trade Fairs / Exhibitions:

Exhibitions are general exposition for product / company / economic awarenessbut may miss the focus required for a category of products / services. Audienceincludes people from all walks of life.

Trade Fairs are aimed at promoting business for the targeted categories ofproducts / services (auto, machinery, textiles, sports goods etc) and mainlyattract audiences with at least primary interest in the types of product on show.

Advantages of specialized (vertical) Trade Fairs in intl marketing:Help achieve promotion of products otherwise not permitted to be advertised.Provide larger audience at a single window.Create awareness of business opportunitiesFacilitate direct contact of potential business partnersGenerate business leads, enquiries, salesHelp develop channel membersLocate potential sources of supplyPresent opportunity for gathering info on competitors, market trends &technological advances, local govt policies

Personal selling in Int'l Markets:Personal selling is the most effective form of communication. It impacts allimportant areas of a firms operations namely, success of new products,maintaining market shares of existing products, entry in new markets, businesssustainability, decisions regarding manufacturing levels and locations.

Advantages of personal selling:Direct dialogue with the consumer (which affords adaptability / flexibility ofapproach)


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Feedback on product and companyMarket intelligence (on competing products / companies)Better understanding & hence effective redressal of complaintsProvides an alternative to heavy / expensive advertisingAllows focus on appropriate product, personal touch and closure of deals (which

does not happen in advertising).Limitations of personal selling:High costs in advanced countriesSuccess depends on abilities of sales personnelRequires extensive training of sales personnelAttrition of sales persons can cause continuity problems with consumers.Avenues of personal selling:1. Trade Fairs, exhibitions - domestic and overseas; general / trade specific2. Buyer - seller meets arranged by EPCs; govt, chambers of commerce

3. Visiting buyers in foreign countries4. Meeting foreign business visitors in home country (visiting on their owninitiative or by invitation of exporter)Personal selling options int'l markets:1. Company's traveling sales personnel attached to HQ of company (useful forcompanies which do not have overseas offices / when full time assignments arenot justified)2. Companys sales personnel attached to its foreign offices (this provides bettermarket coverage, allows employing local personnel to enable better marketpenetration)3. Temporarily hired sales personnel (when regular sales force is not required,e.g. for a particular task, keeps costs lower)Management of sales force:Selection:Creation of job description and listing of qualities required (includinglanguage, communication)Induction & training- basic and periodic up gradation (company, products,market environment, local culture)Supervision and motivation - regular direct interaction / reports to ensure that:Targets are well understood,The activities are on track,Making necessary corrections,Obtaining feedback,Motivation to overcome hurdlesEvaluation & control: Measurement of performance vis a vis targets (marketcoverage, inventory levels, market share, sales target, maintaining customers,creating new customers, CRM)Compensation (apt compensation to appreciate performance)


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Compensations can be financial (rewards, commission, paid vacations, pension /insurance plans) or non-financial (recognition through letters, involvement inhigher profiles / planning, creating a feeling of belonging).Personal selling process:

Preparation (adequate knowledge of company, products, commercial policies,market, competition)Prospecting (creation of profile of prospective customer and his potential)Pre-approach (collecting all relevant info on target customer, formulation ofapproach)Presentation (orientation to the objective, attractive, arousing interest, holdingattention, creating the right impact towards desired objective)Follow up (ensure execution of commitments made, minimize customerdissonance, maintain continuity, build relations)Problems in intl marketing communications:

Higher cost for a proportionate impactDifferences in regulationsCultural differences,Media - availability, costs optionsInfrastructure (info, technical back up)LanguageHome country regulations (permissions for forex expenditure)

X. International Advertising

Advertising & publicity are major tools of communication in marketing.Advertising expenditures are estimated to be in excess of $500 bn p.a.internationally. High income countries spend 1.5 2% of GNP onadvertising.

Advertising may be defined as any paid / sponsored message placed in amass medium.

Global / international advertising is making the same appeal to multicountry markets. A firm which can create an effective global campaign canreap rich dividends in terms of finding new markets and then having a firstmover advantage.

Since ads are often designed to add a psychological value / appeal to aproduct / brand, advertising plays a more important communications role inmarketing consumer products than in industrial products. Frequentlypurchased, low cost products usually require heavy advertising to remind


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consumers about the product. Hence FMCG firms like P&G, Unilver, Pepsi; cocacola spend over a billion dollars every year outside US in advertising.Automobile sector tops the ad spend list. High value / low purchasefrequency products require lower ad spend (but higher direct selling costs).

The environment in which communication programs are implemented may differfrom one country to another and cross borders communication poses a largerproblem. Hence many globally present firms are adopting the concept ofIntegrated Marketing Communication (IMC), which calls for a coordinatedcommunications strategy.

Global advertising: Many human needs, wants, desires are very similar theworld over, if presented within recognizable experience situations. Peopleeverywhere want value, quality and latest technology at an affordable price.Global advertising aims at creating a product culture using this basis (athleticshoes, soft drinks, MP3, clothing).

Advantages of global advertising:Economies of scale in creation of adsImproved access to distribution channels (reassurance to retailers by brandawareness)Easier to modify to local culturesAd preparation spend allows budgets for best available creativity.

The effectiveness of traditional media is declining steadily. Hence, brand buildinglocally is becoming more expensive & intl brand building is becoming more costeffective. Finding ads which work in different countries & cultures is a big

challenge for advertisers.Simultaneously there is a growing local tendencywhich is equally important and it is necessary to understand both. Many

intl brands consider that there are no fixed national / cultural habits andexisting habits can be changed. However, tastes (as different form habits)change even within a country and this factor requires a balancing betweenglobalizing and localizing an ad campaign, which can be called as alocalized intl ad campaign. (Coca cola has different tastes for differentcountries and shoots ads in local languages, back drops, Italian food in Japan &UK, Chinese food in many countries).

For successful intl advertising, it is necessary to have a globalcommitment to local vision. The question of when to use global or localcampaigns depends on the product involved and companys objectives in agiven market.

Advertising Content:Overall requirements of communication for a product do not vary from onecountry to another. The same applies to the process of communication.Communication takes place when the meaning is transferred.


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Major hurdles in communication:1. Message is not delivered to the intended recipient due lack of knowledge ofappropriate media (print i/o TV)2. Message reaches the target audience but it is not understood (worse yet, it is

misunderstood)3. Message reaches target audience, may be understood but does not induce therecipient into desired action (due to cultural differences)4. Message is impaired by noise (competing messages, confusion due too manycommunications on competing products) thus losing effectiveness.

Selecting an ad agency:Considerations:

1. Global manufacturers own organizational set up: a decentralized set upwould leave the local advertising to local arm of the company.

2. Familiarity of the global ad agency with local culture & buying habits in

target market3. Does the ad agency cover all target countries?4. If the product needs strong local identification (buyer perception), it would

be beneficial to select a local ad agency

Advertising appeals and product characteristics:Advertisements must communicate appeals that are most relevant &effective in the target market / audience. The considerations for this are thestage of PLC for the product & cultural, social and economic differences inmarkets.

For a global ad campaign, the marketer should identify commonalities ofthe following in different countries:a. functional & emotional needs, b. cultural similarities (or insignificantdifferences) & c. economies of scale

The usp in each country may differ from one country to another for the sameproduct and hence a global ad needs to be localized to that extent (attributes oftoothpaste, talc powder, ketchup taste).

Creating ads:Art Direction: deals with visual presentation of broadcasting / print advt.Commonizing regional themes may help lower the costs of global campaign.

Copy: Written text of the ad. It should be as short as possible but very effective.In fact the trend is to rely as much as possible on visuals rather than copyand invoking company image (cola ad of Aamir khan burping).Lower literacy, problems encountered in effective translation of copy indifferent languages and thus failure to convey full, correct message are someproblems in copy writing. Style & content differences must be considered


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while creating ads for specific countries (direct product comparisons in US v/ssentimental image appeal in Japan)Cultural considerations: Symbols, colour preferences & meanings, man-woman relationships, social practices can differ greatly from one country toanother and hence localizing of ads is very important to success.

Global Media considerations: Ads created with substantial expenditure canresult in the desired appeal only through an effective media. Hence knowledgeand choice of media is very important.

Media decisions: The extent of availability and usage of TV, print,newspapers, electronic media and the internet varies drastically from onecountry to another.Similarly several factors as govt regulations, commercial practices alsoaffect the efficacy of the media. (one news paper per 2 Japanese, 4Americans, 10-20 south Americans and 200 Swedes or Nigerians. Similarly time

allowed per hour for TV commercials varies- very limited in Europe, and TVcommercials are subjected to censorship especially in Middle East countries.Ownership of TV sets , PCs and internet connections is another big variable).Hence media usage decisions differ from one country to another. Generallyuse of TV tops the list of media preferences in developed world, followedby print media (newspapers / magazines), radio & outdoor.

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International Marketing

Unit 1: Nature of international marketing

Introduction

Process on international marketing

International dimensions of marketing

Domestic marketing VS international marketing

The applicability of marketing

Multinational corporations

The process of internationalization

Benefits of international marketing

Unit 2: Trade distortions and marketing barriers

Protection of local industries

Government: a contribution to protectionism

Tariff barriers

Non-tariff barriers

Private barriers


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WTO

Preferential systems

Unit 3: International marketing environment

Political

Legal Cultural

Technological environment

Natural environment etc

Unit 4: Consumer behaviour in the international context

Perspectives on the consumer

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