mkt 4134 international marketing fourth year first semester

8/14/2019 MKT 4134 International Marketing Fourth Year First Semester

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MKT 4134MKT 4134

International MarketingInternational MarketingFourth Year First SemesterFourth Year First Semester


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Unit 02. GlobalUnit 02. Global

Marketing MixMarketing Mix International product policyInternational product policy

Pricing credit terms ofPricing credit terms ofbusinessbusiness

Distributional decisionsDistributional decisions

Promotional impact onPromotional impact on

international marketing.international marketing.


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Chapter 01Chapter 01

Exporting and ImportingExporting and Importing

marketing and Internationalmarketing and International

MarketingMarketing

2

Pricing, credit terms of business


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MKT 4234 InternationalMarketing

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IntroductionIntroductionWe need to set price when we have a new product, orwhen we enter a new market with an existing productHow? Need to decide what position you want yourproduct to be in.

Possible Pricing ObjectivesProfit objectives e.g.Targeted profit return

Volume objectives e.g.

Dollar or unit sales growthMarket share growth

Other objectives e.g.Match competitors price

Non-price competition


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Domestic and internationalDomestic and internationalprice settingprice setting

Pricing is a highly conspicuous element of themarketing mix and therefore has many publics tosatisfy

The amount of money charged for a product or service,or the sum of the values that consumers exchange forthe benefits of having or using the product or service.Price is the only element of the marketing mix thatproduces revenue; all other elements represent costs.It is also one of the most flexible elements of themarketing mix. It can be changed quickly.

At the same time, pricing can be the number oneproblem: How to generate sufficient sales whilemaximizing profits.


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Domestic and international price settingDomestic and international price setting

Appropriate pricing over t e pro uctdevelopment life cycle depends onthe development of three differentaspects of industry, which usuallymove in parallel paths:

Technical maturity, indicated bydeclining rate of productdevelopment, increasingstandardization among brands, andincreasing stability of manufacturingprocesses and knowledge aboutthem.

Market maturity, indicated by

consumer acceptance of the basicservice idea and by enoughfamiliarity and sophistication topermit consumers to comparebrands competently.

Competitive maturity, indicated by

increasing stability of market sharesand price structures.


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Consumer sensitivity toConsumer sensitivity topricingpricing

Sampson (1964) has argued that manydesensitizing factors operate to diminish theimpact of price changes. Insensitivity will begreater where the following conditions prevail:Personal selling, and therefore, variation in point-

of-sale effectiveness.Promotion is local rather than standardized

nationally.Service after sale is important.

Consumers loyalties are significant.Products are highly differentiated and difficult tocompare.There are multiple dimensions of product quality.Unit price is low.

The product is sophisticated.


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Consumer sensitivity toConsumer sensitivity topricingpricing

S apiro an Jac son 1978 cite ive princip es o a customerapproach to pricing, which are;

2. The customer chooses products by measuring benefitsagainst costs.

3. Benefits include more than physical attributes, and

additional components such as services are important indifferentiating products.4. Cost involves more negative aspects of the purchase than

price alone.5. Benefits and costs must be understood in terms of a

complete usage system, not as an isolated part of thesystem.

6. Different customers view benefits and costs in differentways, meaning that careful market segmentation isnecessary.


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A multi-stage approach toA multi-stage approach topricingpricing

There are six major elements which havebeen identified by Oxenfeldt (1960) in adomestic market pricing decision, which insequential order are:

. Selecting market targets

. Choosing a brand image

Composing a marketing mix

4. Selecting a pricing poli

5. Determining a pricing stra

6. Arriving at a specific pri


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10

International pricingInternational pricingstandardizationstandardization

In an i ea wor t e same price orones product would prevail everywhere,but this does not happen.Price standardization can not happenwithin international marketing becauseof currency fluctuations, different factorcosts, different product requirements,national standards, tariffs, duties andspecific product category taxation plusofficial governmental controls on pricingand discounting.

McDonalds Bic Mac

For example: McDonalds fast food Bic MacPrices differ in different countries due above

factors described.


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11

Export market overheadsExport market overheads

Overheads arise with the sale of goodsto their final destination, the customer.In international marketing, there arecosts of freight and of distribution if

the goods are simply to be exportedbut remain competitive on the foreignmarkets; and, the problems of criticalmass and economies of scale if the

products are to be produced locally inthat foreign market.

The cost of market entry an

representation is an overhead, as isan re uired roduct modification to


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Foreign currency invoicingForeign currency invoicingand financingand financing

The advantages of foreign currency invoicinginclude the following:

The ability to invoice in international currenciessuch as the US dollar which may be moreattractive to buyers in the home countryconcerned.

The buyer is relieved of exchange risk where theprice quotation is given in his own currency.

When sterling is at discount on the forwardexchange markets, an exporter can sell hisexpected currency receipts forward for moresterling than he would receive at currentlyprevailing spot rates.

f


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Methods of paymentMethods of paymentMany exporters still rely on overdrafts unconnectedto the companys export business, but overdraftsare for short term needs and must be repaid on

demand.

Methods ofPayment

Bills of exchange

Letter of credit

Leasing

Bonding

Payment inadvance

Open account


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Methods of paymentMethods of paymentPayment may either cash

with order (CWO) or cashon delivery (COD), but thishas very limitedapplication and is quiterare.It would kill relationshipbefore started to ask forcash upfront. This may berequested only where the

buyer is unknown. There is less likelihood offurther orders beingrequested and being paid

for.

Methods of

Payment

Payment inadvance


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Methods of paymentMethods of paymentAs this is based on trust, it

offers the least security to theexporter, so should be limitedto the most creditworthy

customers, as well assubsidiaries and affiliates.

It save money andprocedural difficulties, butincreases risk.

Consignment account is avariation of Open accountwhere exporter retainsownership of goods until theyare sold.

Methods of

Payment

Open Account


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Methods of paymentMethods of payment

unconditional order inwriting, addressed by oneperson to another, signedby the person giving it,

requiring the person towhom it is addressed topay on demand or at afixed or determinable

future time, a certain sumin money to, or to theorder of, a specifiedperson, or the bearer.

Methods of

Payment

Bills ofexchange


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Methods of paymentMethods of payment A etter o cre t s a con t ona

undertaking by a bank regarding

payment. A letter of credit offers both

parties to a transaction a degreeof security combined with apossibility, for a creditworthy

partner, of securing financialassistance more easily. It has 3 forms;

Revocable credit (it gives thebuyer maximum flexibility as it

can be cancelled without priornotice to the seller. Irrecoverable credit (it is much

less flexible and can only beamended or cancelled if allparties agree.

Confirmed irrecoverable credit

Methods of

Payment

Letter ofcredit


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Methods of paymentMethods of payment

Characteristics of letter ofcredit;

2. They are an arrangement bybanks for setting

international commercialtransactions.

3. They provide a form ofsecurity for the parties

involved.4. They ensure payment,provided that the terms andconditions of the credit havebeen fulfilled.

5. Payment by such means is

Methods of

Payment

Letter ofcredit


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Methods of paymentMethods of paymentExporters o cap ta equ pment may

use leasing in one of two ways:2. To arrange cross-border leasesdirectly from a bank or leasingcompany to the foreign buyer.

3. To obtain local leasing facilitieseither through overseasbranches or subdivisions of UKbanks or through internationalleasing associations.

When leasing, the exporter receivesprompt payment for goodsdirectly from the leasingcompany and at the same timeavoids any recourse.

A leasing facility is best set up at

Methods o

Payment

Leasing


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Methods of paymentMethods of paymentIt means that the buyer loses some

of his leverage over his supplieras he cannot withhold paymentas elsewhere contracts are of alonger duration.

In this situation, a bond orguarantee is a written

instrument issued to an overeasbuyer by an acceptable thirdparty, either a bank or insurancecompany.

It guarantees compliance by an

exporter or contractor with hisobligations, or the overseasbuyer will be indemnified for astated amount against thefailure of the exporter/contractorto fulfill his obligations under thecontract.

Methods o

Payment

Bonding


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Discounting and factoringDiscounting and factoring

The factors aremainly owned bythe large bank.

They offer twoservices

Invoicediscounting

Factoring


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Discounting

Invoice discounting

is a means offinancing whereby theexporter sells hisinvoices to the factorat a discount in return

for up to 80% ofpurchase price inadvance


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MKT 4234 InternationalMarketing 23


DiscountingIn recent years, invoicefactoring has enjoyed a

remarkable rise in popularity,with both large and smallcompanies taking advantageof the opportunity to getdiscounted cash flow. It isnow often combined with

asset-based lending (onvehicles, property or IT forexample).


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Factoring

When a company factorsits accounts receivable, itsells individual accounts

to a financial institution(called a factor).

n erme a e ccoun ng as an ece va es


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S a l e

o f A

c c o u nts

Re c e iv

a b le

Accounts

Receivable

Established

Goods and

Services Provided

CustomersCustomers CompanyCompany

FactorFactor

C a

shfr

om

Fact o

rin g

Acco u n

tsR

ec

ei v

a ble

PaymentofAccounts

Receivable




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The advantages to the exporter of

factoring include:

2. Only one debtor- the factor.

3. No sales ledgering necessary.

4. No need to credit check or creditinsurance.

5. No-recourse finance available.

6. Regular cash flow.

7. No foreign currency risk.

8. Substantial savings in staff andcollection systems.



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Factoring disadvantages Factoring companies are

invariably selective in theirchoice of client and of thedebtors they will factor.

The service charge may begreater than the cost ofemploying own staff andsystems.

Contact with customers isreduced or eliminated.

As the business grows andthe factors charge becomesunacceptable, the exporterwill not have developed in-house experience.




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ForfaitingForfaiting

Forfaiting is an arrangementwhereby exporters of capital goodscan obtain medium-term finance,

usually for periods of between oneand seven years. The forfaiting owes its origin to aFrench term forfait which meansto forfeit (or surrender) ones rights

on something to some one else.Under this mode of export finance,then exporter forfaits his rights tothe future receivables and the

forfaiter loses recourse to the-


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CountertradeCountertrade

Countertrade is a sale that encompasses more than anexchange of goods, services, or ideas for money.

Countertrade transactions are those transactions that

have as a basic characteristic a linkage, legal orotherwise between exports and imports of goods orservices in addition to, or in place of, financialsettlements.

Countertrade transactions have therefore alwaysarisen when economic circumstances made it moreacceptable to exchange goods directly rather than touse money as an intermediary.

Countertrade is an alternative means of structuring aninternational sale when conventional means of


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Countertrade (CT)..Countertrade (CT)..There are five main variants ofcountertrade: Barter: Exchange of goods or services

directly for other goods or services withoutthe use of money as means of purchase orpayment.

Switch trading: Practice in which one

company sells to another its obligation tomake a purchase in a given country. Counter purchase : Sale of goods and

services to a country by a company thatpromises to make a future purchase of aspecific product from the country.

Buybackoccurs when a firm builds a plant ina country - or supplies technology,

equipment, training, or other services to thecountry - and agrees to take a certainpercentage of the plant's output as partialpayment for the contract.

Offset : Agreement that a company willoffset a hard - currency purchase of anunspecified product from that nation in thefuture.

5Types

Ofcounter trade


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1. The world debt crisis has madeordinary trade financing veryrisky.

2. The use of countertrade permits

the covert reduction of prices andtherefore allows thecircumvention of price andexchange controls.

3. You scratch my back and Ill

scratch yours Bilateralism4. Excellent mechanism to gain

entry into new markets

5. Countertrade can be a good

way to attract new buyers.

Advantages


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May involve the exchange of poorquality goods

Importing firm must find a marketfor goods in an unrelated industry

Can involve building a marketinginfrastructure to dispose of astream of such goods

More suitable to large firms

Disadvantages


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CartelsCartels

In these are illegal but for exporting, they are permissible, just asquestionable payments may be illegal in the home market but, iffor international trade promotions, suddenly become allowable fortax allowances.

This is similar to the consortium or federated approach to exporting,where several independent companies may choose to collaborateto make a concerted pitch to a target foreign market.

Other well-known examples include:OPEC: As its name suggests, OPEC is organized by sovereign states. It cannot

be held to antitrust enforcement in otherjurisdictions by virtue of thedoctrine of state immunity under public international law. However,members of the group do frequently break rank to increase productionquotas.

De Beers is a cartel of companies that trade in rough diamond exploration.Many trade organizations especially in industries dominated by only a few

major companies, have been accused of being fronts for cartels:Although cartels are usually thought of as a group of corporations, some

consider labour Unions to be cartels, as they seek to raise the price oflabor (wages) by preventing competition.


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Thank YouThank You..

A ti ?A ti ?


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MKT 4234 InternationalM k i 35

Any questions ?Any questions ?

mkt 4134 international marketing fourth year first semester

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