Chapter Five

PRODUCT and PRICING POLICY FOR INTERNATIONAL

MARKETS

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 chapter outline

Planning and development of products for foreign markets

origin of international product
Adaptation versus Standardization of the Product
Product Attributes in International Markets
Packaging and Labeling
Explain the approaches to international pricing
Describe the export pricing strategies
Explain price escalation and export-related costs
Explain each of the different terms of payments in
international marketing
The meaning of transfer pricing

2 Pricing under counter trade
Planning and development of products for foreign markets

People satisfy their needs and wants with products. A product is

anything that can be offered to a market for attention,
acquisition, use or consumption that might satisfy a want or
need.
Product policy is a strategic rule or rules covering how a
good or service is promoted to potential consumers. A typical
product policy created by a business for a manufactured
product might attempt to manage how the item will be
perceived by its target market and could also contain
information about how durable the product is. therefore the
decisions taken on the product policy has considerable impact on
the success of the product in the international market.
The policy of a business on product standardization, product
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modification, branding and packaging.
Origin of international product
Country of origin refer to the practice of marketer and consumer associating with
countries and making buying decision made on the country of origin of the
product. It is also refer to how country of origin an extrinsic cue is used by the
customer in evaluation and shapes their perception, attitude and intentions toward
buying a product.

Country of origin Product

Ethiopia coffee
Japan TV
Malaysia Athletic shoes
Germany Car
Hong Kong Mobile phone
Germany Beer
China Banking service
Singapore Airline
Vietnam Jeans
India Soft drink
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 Adaptation versus Standardization of the Product

A central issue in approaching global markets is whether

products sold in the home market should be adapted or
standardized for international markets.
This raises the question of whether a company can
successfully design and market a global product.
Other issues have to do with standardizing or adopting
product features, such as packaging, and labeling, brands and
trademarks, and warranty and service policies.
Product standardization: is the process of setting generally
uniform characteristics for a particular good or service.

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Standardization- developing same product for multiple
countries
Premise-- consumes share some common values, beliefs, and
consumption patterns
Advantages: economies of scale and scope, uniform image

Product Adaptation/Modification- modifying product to

reflect characteristics of a market
Premise-- consumers are not the same
Advantages: improved fit between product and consumer,
expanded penetration

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 Factors Encouraging Standardization

High Costs of Adaptation

Industrial Products
 Products in which technical specifications are critical tend to be
uniform internationally.
 Differences significant in international business are “people
differences,” that is, cultural differences. In general, then,
industrial goods are more standardized than consumer goods.
Convergence and Similar Tastes in Diverse Country Markets
 As countries obtain similar income levels and develop
economically at the same pace, their consumption patterns are
likely to converge.
Centralized Management and Operating via Exports
If a firm markets overseas principally through exports, it is
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likely to sell standardized products.
Economies of Scale in Production
Standardizing a product at a production site allows the
firm to gain scale economies in manufacturing.
Economies in Research and Development
If the firm offers the identical product around the
world, it gets more mileage out of its R&D efforts.
Economies in Marketing
Even when marketing is done on a national basis,
economies of scale are possible with standardized
products.

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 Factors Encouraging Adaptation
The greatest argument for adapting products is that by
doing so the firm can realize higher profits.
Specific factors encouraging product adaptation include:
1. Differences in Technical Standards
Firms must meet technical standards in order to sell in
different national markets.
For example, agricultural products sold into the U.S. must meet
guidelines for maximum levels of chemical additives and
fertilizers used in growing such products.
In Europe, there are restrictions on the sale of beef from cows
treated with growth hormones.
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2. Consumer and Personal Use Products
Products sold to consumers and for personal use are likely to
meet with market success when adapted to local markets.
3. Variation in Consumer Needs and Differing Use Conditions
 Although a given product fulfills a similar functional need in
various countries, the conditions under which the product is
used may vary greatly from country to country.
 Climate, for instance, has an effect on products sensitive to
temperature or humidity, making it necessary to modify these
products for tropical or arctic markets.
4. Variation in Ability to Buy Differing Income Levels
 Product features may have to be adapted to make the product
affordable at lower income levels.

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5. The Impact of Cultural Differences
Cultural differences affect the tastes, the acceptance
of products, and consumption habits.
Food is an area in which cultural differences
dominate.
6. Environmentally Induced Adaptation: The
Influence of Governments
Nations may forbid certain goods to be imported to
their country.
Conversely, they may require that the product be
manufactured locally, not imported.
Demands for local production or a high degree of
“local content” in the product often lead the
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international firm to modify it.
 Branding

In developing a marketing strategy for individual products, the

seller has to confront the branding decision, branding is a major
issue in product strategy. On the one hand, developing a branded
product requires a great deal of long-term investment spending,
especially from advertising, promotion, and packaging.
Perhaps the most distinctive skill of professional marketers is
their ability to create, maintain, protect, and enhance brands,
marketers say that “Branding is the art and cornerstone of
marketing."
The American marketing association defines a brand as follows:

"A Brand is a name, term, sign, symbol, or design, or a

combination of them, intended to identify the goods or services of
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one seller or group of sellers and to differentiate them from those
of competitors".
What is Brand Equity
Brand varies in the amount of power and value they have in the
market place.
High brand equity provides a number of competitive advantages:
-
The company will enjoy reduced marketing costs because of
high level of consumer's brand awareness and loyalty.
The company will have more trade leverage in bargaining with
distribution and retailers since customers expect them to carry
the brand.
The company can charge a higher price than its competitors
because the brand has higher perceived quality.
The company can more easily launch brand extension since the
brand name carries high credibility.

13 The brand offers the company some defense against fierce price
competition
Brand Name Selection: -
A good name can add greatly to a products' success. However,
finding the best brand name is a difficult task.
It begins with a careful review of the product and its benefits, the
target market and proposed marketing strategies.
 Desirable qualities for a brand name includes:-
 It should suggest something about the product's benefits &
qualities
 It should be easy to pronounce, recognize, and remember. The
brand name should be distinctive
 It should be capable of registration and legal protection
The functions of a brand are: -
Create identification and brand awareness
Guarantee a certain level of quality, quantity and satisfaction and

14 Used as a promotional tool etc.
The four levels of branding decisions
A. Private Brands versus Manufacturer’s Brand
Distributors in the world of international business; their
brands are private brands. For example, many portable TV
sets mode in Japan for U.S market are under private labels.
Many distributors often insisted on their own private brands
for several reasons, namely:
A distributor may be able to create a unique product by
bundling or unbundling product attributes and then adjusting
the price to reflect the proper value.
A private brand is a defensive strategy that guarantees that a
distributor is not by passed by its supplier.
Distributors insist on private brand mainly because of brand
loyalty, bargaining power, and price.
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B. Local Brands versus Global Brands
 Then international marketer must decide whether to use just one
brand name worldwide or differentiate brands for different countries.
 A single worldwide brand is also known as an international,
universal or global brand.
 For a brand to be global or worldwide, it must, by definition has
some commonly set of characteristics and benefits in all its markets.
For example, Coca-Cola is a global brand in the sense that it has
been successful in maintaining similar perception across countries
and cultures.
A worldwide brand has several advantages:
 It tends to be associated with status and prestige.
 It achieves maximum market impact overall, while reducing
advertising costs, because only one brand is pushed.
 It is an appropriate approach when a product has a good reputation

16 or is known for quality.

Cont’d

Local Branding-There is several reasons for using local

branding, namely:
When the manufacturer is unable to ensure uniform product
quality across countries
When an existing brand is difficult to pronounce. For
example, Wrigley had trouble with its spear mint name in
Germany, until the spelling was changed to SPEAMINT.
 A local brand is more easily understood and more
meaningful for local consumers.
 A local brand can avoid a negative connotation.
Some MNCs acquire local brands for a quick market
penetration in order to save time.
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 Brand strategy
 A company has four choices when it comes to brand strategy, which are as
follows:-
i) Line extension: Line extension occur when a company introduces
additional items in the same product category under the same brand name,
usually with features, such as new flavors, forms, colors, added ingredients,
package sizes, and so on.
ii) Brand Extension: A company may decide to use an existing brand
name to launch a product in a new category. Brand extension strategy offers
a number of advantages. A well-regarded brand name gives the new product
instant recognition and earlier acceptance. It enables the company to enter
new product categories more easily.
i.e. Sony puts its name on most of its electronic products and instantly
establish a connection of the new products high quality.
iii) Multi brands: A company will often introduce additional brands in
the same product category. There are various motives for doing this.
Sometimes
18 the company is trying to establish different features and/or
appeal to different buying motives.
A multi branding strategy also enables the company to lock up
more distributors shelf space and to protect its major brand by
setting up flanker brands. For example, Seiko establishes different
brand names for its higher priced (Seiko LaSalle) and lower-priced
watch (pulsar) to protect its flanks.

iv) New brand: When a company launches products in a new

category, it may find that none of its current brand names are
appropriate.

v) Co-brands :A rising phenomenon is the appearance of co-

branding (also called dual branding), is which two or more well-
known brands are combined in an offer. Each brand sponsor
expects
19 that the other brand name will strengthen brand preference
or purchase intention.
 Brand piracy

Brand piracy occurs when a product is named similarly to a

well -known brand so that consumers may mistake it for the
actual brand-name. Brand piracy is the act of naming a
product in a manner which can result in confusion with other
better known brands.
 Brand piracy is common among products that can easily
be replicated.
 The copies often have logos that resemble the design of the
genuine product, be it layout, symbols, color or font. Often
times, this is done on purpose by a company to mislead
consumers and gain some market share.
Examples of Coalgate, as against Colgate, Nake as Nike,
20 Adibas and Abibas as Adidas.
Packaging and the resulting package are intended to serve
several vital purposes.
i) Protect the product on its way to the consumer.
ii) Provide protection after the product is purchased.
iii) Be part of a company's trade marketing program.
iv) Be part of a company's consumer marketing program.
Packing problems
There are four common packaging problems; same of them are
in direct conflict with one another. They are
Weight
Breakage
Moisture and temperature and
Pilferage and theft
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Labeling
Labeling which is closely related to packaging is another
product feature that requires managerial attention.
o A label is a part of a product that carries information about
the product and the seller. A label may be part of the
package, or it may be a tag attached to the product.
o Primary considerations in labeling are providing information
to the consumers and the use of multiple languages.
o Regulations in many countries require that detailed product
compositions and nutritional information be provided as well
as warning messages in the case of products that may be
harmful or hazardous.

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Types of labels:-Labels fall into three primary kinds:-
i) A brand label:-It is simply the brand name applied to the
product or package.
ii) A descriptive label: It gives objectives information about the
products' use construction, care, performance, and/or other
pertinent features ingredients and nutritional contents.
iii) A grade label: It identifies the products judged quality with a
letter, number, or word. Canned peaches are grade labeled
A,B,C, corn and wheat are grade labeled 1 & 2.
Functions of Labeling
The label identifies the product or brand
The label might also describe several things about the product.
The label might promote the product through attractive
graphics
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 PRICING FOR INTERNATIONAL MARKETS

Pricing is part of the marketing mix. It is the only element of the

marketing mix that generate revenue; all of the others are costs.
 It should therefore be used as an active instrument of strategy
in the major areas of marketing decision making.
Approaches to International Pricing
Several factors are important in international market pricing:
1. Setting pricing and strategic objectives
2. Monitoring price-setting behavior by competitors and assessing
their strategic objectives.
3. Evaluating consumers’ ability to buy in the various country
markets.
4. Relating price to a firm’s costs and profit goals.
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5. Understanding the product-specific factors, including
product life cycle stage, that affect pricing.
6. Recognizing differences in the country environment
governing prices in each national market differences
 in the legal and regulatory environment,
the volatility of foreign exchange rates,
market structure (especially distribution channels),
and
competitive environment.
Both cost and market considerations are important in
international pricing;
a company cannot sell goods below cost of production
and remain in business for very long, and neither can it
sell goods at a price unacceptable in the marketplace.
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In first-time pricing, the general alternatives are:-
 Skimming,
 Following the market price, and
 Penetration pricing.

When the above pricing strategies can be employed?

A) Market-Skimming Pricing
Many companies that invent new products initially set high prices to "skim"
revenues layer by layer from the market. Intel is a prime user of this strategy,
called market-skimming pricing.
 Market skimming makes sense only under certain conditions.
 First, the product's quality and image must support its higher price, and enough
buyers must want the product at that price.
 Second, the costs of producing a smaller volume cannot be so high that
they cancel the advantage of charging more.
 Finally, competitors should not be able to enter the market easily and
undercut the high price.
 Examples are: Mobile phones, Televisions and most of electronic items
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B)Market-Penetration Pricing
Rather than setting a high initial price to skim off small, but
profitable market segments some companies use market-penetration
pricing. They set a low initial price in order to penetrate the market
quickly and deeply to attract a large number of buyers quickly and
win a large market share. The high sales volume results in falling
costs, allowing the company to cut its price even further.
 Several conditions must be met for this low-price strategy.
 First, the market must be highly price sensitive so that a low price
produces more market growth.
 Second, production and distribution costs must fall as sales
volume increases.
 Finally, the low price must help keep out the competition, and
the penetration price must maintain its low-price position—
otherwise, the price advantage may be only temporary.
27 Example: magazines, TV channels.
International Pricing Objectives

 Pricing objectives or goals give direction to the whole pricing

process. Determining what your objectives are is the first step in
pricing. To be useful, the pricing objectives management selects must
be compatible with the overall goals set by the company and the
goals for its marketing program.
 Some of the pricing objectives set by the firm may include:
 Profit oriented
To achieve a target return
 To maximize profit
 Sales oriented -
To increase sales volume
To maintain or increase market share
 Status quo-oriented
To stabilize prices
28 To meet competition
Profit – Oriented Goals
Profit-oriented goals may be set for the short or long run. The
company may select one or two profit oriented goals for its pricing
policy.
 Achieve a target return
A firm may price its product to achieve a target return – a specified
percentage return on its sales or on its investment. Many retailers and
wholesalers use a target return on sales as a pricing objective for short
period such as a year or a fashion season. They add an amount to the
rest of the product, called a markup, to cover anticipated operating
expenses and provide a desired profit for the period.

 Maximize Profit
The pricing objective of making as much money as possible is
probably followed more than any other goal. The trouble with this goal
29 is that to some people, profit maximization has an ugly connotation,
suggesting profiteering, high price and monopoly.
Sales- Oriented Goals
In some companies management’s pricing is focused on sales volume. The pricing goal
may be to increase sales volume or to maintain or increase the firm’s market share.
 Increase Sales Volume
 The pricing goal of increasing sales volume is typically adopted to achieve rapid
growth or to discourage potential competitors from entering a market. The goal is
usually stated as a percentage increase in sales volume over same period, say 3 years or
3 year. Management may seek higher sales volume by discounting or by other
aggressive pricing strategy.
 Maintain or Increase Market share
 In some companies, both large and small the pricing objective is to maintain or
increase market share. Most industries today are not grouping much, if at all, and have
excess production capacity. Many firms need added sales to more utilize their
production capacity, and in turn, gain economies of scale and better profit.
 Status - Quo - Oriented Goals
 Two related goals – stabilizing prices and meeting competition – are the least
aggressive of all pricing goals. They are intended simply to maintain the firm’s current
situation – that is, the status quo. With either of these goals, a firm seeks to avoid price
competition.
 Price stabilization often is the goal in industries where the product is highly
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standardized (such as steel or bulk chemicals) and one large firm.
 The Setting of Export Prices

Export Pricing Strategy

 Three general price-setting strategies in international marketing are
 A standard worldwide price;
 Dual pricing, which differentiates between domestic and export prices; and
 Market-differentiated pricing.

Export-Related Costs
• The cost of modifying the product for foreign markets.
• Operational costs of the export operation: personnel, market
research, additional shipping and insurance costs, communications
costs with foreign customers, and overseas promotional costs.
• Costs incurred in entering the foreign markets: risks associated with
a buyer in a different market (mainly commercial credit risks and
political risks); and risks form dealing in other than the exporter’s
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domestic currency that is, foreign exchange risk.
 Terms of Payment
The four basic payment arrangements (in order of
increasing attractiveness to the importer) 
1) cash in advance,
2) letters of credit,
3) open accounts, and
4) consignment

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 Method  : Cash in advance or Prepayments;

The goods will not be shipped until the buyer has paid the seller.
 Time of payment : Before shipment
 Goods available to buyers : After payment
 Risk to exporter : None
 Risk to importer : Relies completely on exporter to ship goods as
ordered

 Method  : Letters of credit (L/C)

 These are issued by a bank on behalf of the importer promising to

pay the exporter upon presentation of the shipping documents.
 Time of payment : When shipment is made
 Goods available to buyers : After payment
 Risk to exporter : Very little or none
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 Risk to importer : Relies on exporter to ship goods as described in
Method  : Open Accounts
The exporter ships the merchandise and expects the buyer to remit
payment according to the agreed-upon terms.
Time of payment : As agreed upon
Goods available to buyers : Before payment
Risk to exporter : Relies completely on buyer to pay account as
agreed upon
Risk to importer : None
Method  : Consignments
The exporter retains actual title to the goods that are shipped to
the importer.
Time of payment : At time of sale to third party
Goods available to buyers : Before payment
Risk to exporter : Allows importer to sell inventory before

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paying exporter
Risk to importer : None
 Pricing under counter trade and Transfer pricing

Countertrade, one of the oldest forms of trade, is a government mandate

to pay for goods and services with something other than cash. It is a
practice which requires a seller, as a condition of sale, to commit
contractually to reciprocate and undertake certain business initiatives
that compensate and benefit the buyer.
In short, a goods-for-goods deal is countertrade Unlike monetary trade,
suppliers are required to take customers’ products for their use or for
resale.
There are three primary reasons for countertrade:
(1) countertrade provides a trade financing alternative to those
countries that have international debt and liquidity problems,
(2) countertrade relationships may provide developing countries and
MNCs with access to new markets, and
(3) Countertrade fits well conceptually with the resurgence of bilateral
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trade agreements between governments.
The advantages of countertrade cluster around three subjects:
1) market access,
2) foreign exchange, and
3) Pricing
What is Transfer pricing
Transfer pricing refer to the price of good and services that are
exchange between company under common control. For
example if the subsidiary company sells good or render service
to its holding company or sister company, the price charged
referred to as the transfer price.
What is Dumping
Dumping is selling products below production cost. This is done
by multinational companies to get out domestic manufacturers
from competition; governments are imposing various fines to
curb
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this situation.