MK009 – International Marketing Assignment Set – 1

1. International marketing is basically an extension of domestic marketing. Do you agree or disagree with this statement? Justify your answer.

Answer: - International marketing can be conceptualized in terms of extension of domestic marketing as the product of a new international integrative order.

The Domestic Market Extension Concept: - The domestic company that seeks sales extension of its domestic products into foreign markets illustrates this orientation to international marketing. It views its international operations as secondary to an extension of its domestic operations. The primary motive is to dispose of excess domestic production. Domestic business is its priority and foreign sales are seen as a profitable extension of domestic operations. While foreign markets may be vigorously pursued the orientation remains basically domestic. Its attitude toward international sales is typified by the belief that if it sells in Peoria it will sell anywhere else in the world. Minimal, if any, efforts are made to adapt the marketing mix to foreign markets. The firm’s orientation is to market to foreign customers in the same manner the company markets to domestic customers. It seeks markets where demand is similar to the home market and its domestic product will be acceptable. This Domestic Market Expansion Strategy can be very profitable. Large and small exporting companies approach international marketing from this perspective.

2. Discuss the factors which need to be considered in making product related decisions in international markets.

Answer: - It is essential that the production of the product or service is well planned and coordinated, both within and with other functional area of the firm these decisions are very critical. The factors which need to be considered in making product related decisions in international markets are: Specification: - Specification is very important in products. Some markets will not take produce unless it is within their specification. Specifications are often se by the customer, but agents, standard authorities (like the EU or ITC Geneva) and trade associations can be useful sources, found, generally, that there are no consistent standards for product quality and grading , making it difficult to do international trade regionally.

Culture: Product packaging, labeling, physical characteristics and marketing have to adapt to the cultural requirements when necessary. Religion, values, aesthetics, language and material culture all effect production decisions. Effects of culture on production decisions have been dealt with already in chapter three.

Physical product: The physical product is made up of a variety of elements. These elements include the physical product and the subjective image of the product. Consumers are looking for benefits and these must be conveyed in the total product package, Physical characteristics include range, shape, size, colour, quality, quantity and compatibility. Subjective attributes are determined by advertising, self image, labeling and packaging, In manufacturing or selling produce cognizance has to be taken of cost and country legal requirements.

Again a number of these characteristics is governed by the customer or agent For example, in beef products sold to the EU there are very strict quality requirements to be observed in fish products, the Japanese demand more “exotic” types than, say, would be sold in the UK. In sophisticated markets like seed, the variety and range is so large that constant watch has to be kept on the new strains and varieties in order to be competitive.

Packaging: Packaging serves many purposes. It protects the product from damage which could be incurred in handling and transportation and also has a promotional aspect. It can be very expensive. Size, unit type, weight and volume are very important in packaging. Costs of packaging have always to be weighed against the advantage gained by it.

Increasingly, environmental aspects are coming into play. Packaging which is non-degradable-plastic, for example-is less in demanded. Bio-degradable, recyclable, reusable, expensive and demanding for many developing countries.

Labeling: Labeling not only serves to express the contents of the product, but may be promotional. The EU is now putting very stringent regulations in force on labeling, even to the degree that the pesticides and insecticides used on horticultural produce have to be listed. This could be very demanding for producers, especially small scale, ones where production techniques may not be standardized. Government labeling regulations vary from country to country. Labels may have to be multilingual, especially if the product is a world brand. Translation could be a problem with many words being translated with difficulty. Again labeling is expensive, and in promotion terms non-standard labels are more expensive than standard ones. Requirements for crate labeling etc. for international transportation will be dealt with later under documentation.

Branding and trademarks: - It is difficult to protect a trademark or brand, unless all countries are members of a convention. Brand “piracy” is widespread in many developing countries. Other aspects of branding include the promotional aspects. A family brand of products under the Zeneca (ex ICI) label or Sterling Health are likely to be recognized worldwide, and hence enhance the “subjective” product characteristics.

Warranty: - Many large value agricultural products like machinery require warranties. Unfortunately not everyone upholds them. It is common practice in Africa that it the original equipment has not been bought through an authorized dealer, in the country, that dealer refuses to honour the warranty. This is unfortunate, because not only may the equipment have been legitimately bought overseas; it also actually builds up consumer resistance to the dealer. When the consumer is eventually offered a choice, the reticent dealer will suffer.

Product strategies: - There are five major product strategies in international marketing: i) Product communications extension: This strategy is very low cost and merely

takes the same product and communication strategy into other markets. However it can be risky if misjudgments are made. For example CPC International believed the US consumer would take to dry soups, which dominate the European market. It did not work.

ii) Extended product – communications adaptation. If the product basically fits the different needs or segments of a market it may need an adjustment in marketing communications only. Again this is a low cost strategy, but different product functions have to be identified and a suitable communications mix developed.

iii) Product adaptation – communications extension. The product is adapted to fit usage conditions but the communication stays the same. The assumption is that the product will serve the same function in foreign markets under different usage conditions.

iv) Product adaptation – communications adaptation. Both product and communication strategies need attention to fit the peculiar need of the market.

v) Product invention. This needs a totally new idea to fit the exclusive conditions of the market. This is very much a strategy which could be ideal in a third world situation. The development costs may be high, but the advantage.

The choice of strategy will depend on the most appropriate product/market analysis and is a function of the product itself defined in terms of the function or need it serves, the market defined in terms of the condition under which the product is used, the preferences of the potential customers and the ability to buy the product in questions, and the costs of adaptation and manufacture to the company considering these product – communications approaches.

3. Write short notes on – a) International distribution objectives b) e-commerce.

Answer: - a) International distribution objectivesThere can be different objectives for different firms. Some of them are as under:

Interrelated objectives: - A firm’s distribution objectives will ultimately be highly related-some will enhance each other while others will complete. For example, as we have discussed generally entail less intensity and lesser reach. Cost has to be traded off against speed of delivery and intensity. (it is much more expensive to have a product available in convenience stores than in supermarkets, for examples).

Narrow vs wide reach: The extent to which a firm should seek narrow (exclusive) vs, wide (intense) distribution depends on a number of factors. One issue is the consumer’s likelihood of switching and willingness to search. For example, most consumers will switch soft drink brands rather than walking from a vending machine to a convenience store several blocks away, so intensity of distribution is essential here. However , for sewing machines, consumers will expect to travel at least to a department for discount store, and premium brands may have more credibility if they are carried only in full service specially stores. Retailers involved in a more exclusive distribution arrangement are likely to be more “loyal” – i.e. they will tend to recommend the product to the customer and thus sell large quantities, carry larger inventories and selections and provide more services.

Distribution Opportunities: Distribution provides a number of opportunities for the marketer that may normally be associated with other elements of the marketing mix. For example, for a cost, the firm can promote its objective by such activities as in-store

demonstrations/samples and special placement (for which the retailer is often paid). Placement is also an opportunity for promotion e.g., airlines know the they, as “prestige accounts,” can get very good deals from soft drink makers who are eager to have their products offered on the airlines. Similarly, it may be useful to give away, or sell at low prices, certain premiums (e.g., T-shirts or cups with the corporate logo.) It may even be possible to have advertisements printed on the retailer’s bags (e.g., “Got milk?”)

Other opportunities involve “parallel” distribution (e.g., having products sold both through conventional channels and through the Internet or factory outlet stores). Partnership and joint promotions may involve distribution (e.g., Burger King Sell’s clearly branded Hershey pies).

Deciding on a strategy: In view of the need for markets to be balanced, the same distribution strategy is unlikely to be successful for each firm. The question, than, is exactly which strategy should one use? It may not be obvious whether higher margins in a selective distribution setting will compensate for smaller unit sales. Here, various research tools are useful. In focus groups it is possible to assess what consumers are looking for and which attributers are more important. Scanner data, indicating how frequently various products are purchased and items whose sales correlate with each other may suggest the best placement strategies.

It may also, to the extent ethically possible, be useful to observe consumers in the field using products and making purchase decisions, one can observe factors such as (1) how much time is devoted to selecting a product in a given category, (2) how many compared or are substitutes (e.g., frozen yogurt vs. cookies in a mall), (4) what are “complementing” products that may cue the purchase of others if placed nearby. Channel members – both wholesalers and retailers – may have valuable information, but their comments should be viewed with suspicion, as they have their own agendas and may distort information.

b) E-commerce

E Commerce is one of the most important facets of the Internet to have emerged in the recent times. Ecommerce or electronic commerce involves carrying out business over the Internet with the assistance of computers, which are linked to each other forming a network. To be specific ecommerce would be buying and selling of goods and services and transfer of funds through digital communications.

The benefits of E-commerce:

Ecommerce allows people to carry out businesses without the barriers of time of distance. One can log on to the Internet at any point of time, be it day or night and purchase or sell anything one desires at a single click of the mouse. The direct cost-of-sale for an order taken from a web site is lower than through traditional means (retail, paper based), as there is no human interaction during the on-line electronic purchase order process. Also, electronic selling virtually eliminates processing errors, as well as being faster and more convenient for the visitor.

Ecommerce is ideal for niche products. Customers for such products are usually few. But in the vast market place i.e. the Internet, even niche products could generate viable volumes.

Another important benefit of Ecommerce is that it is the cheapest means of doing business.

The day –to-day pressures of the marketplace have played their part in reducing the opportunities for companies to invest in improving their competitive position. A mature market, increased competitions have all reduced the amount of money available to invest. If the selling price cannot be increased and the manufactured cost cannot be decreased then the difference can be in the way the business is carried out. Ecommerce has provided the solution by decimating the cost, which are incurred. From the buyer’s perspective also ecommerce offers a lot of tangible advantages.

1. Reduction in buyer’s sorting out time.2. Better buyer decisions3. Less time is spent in resolving invoice and order discrepancies. 4. Increased opportunities for buying alternative products.

The strategic benefit of making a business ‘ecommerce enabled’, is that it helps reduce the delivery time, labour cost and the cost incurred in the following areas:

1. Document preparation2. Error detection and correction3. Reconciliation4. Mail preparation5. Telephone calling 6. Data entry7. Overtime8. Supervision expenses

Operational benefits of commerce include reducing both the time and personnel required to compete business processes, and reducing strain on other resources. It’s because of all these advantages that one can harness the power of ecommerce and convert a business to e-business by using powerful turnkey ecommerce solutions made available by e-business solution providers.

The Internet has created a new economic ecosystem, the e-commerce marketplace, and it has become the virtual main street of the world. Providing a quick and convenient way of exchanging goods and services both regionally and globally, e-commerce has boomed. Today, e-commerce has grown into a huge industry with consumer electronic, from books and media distribution to sports & fitness. With more than 70% of Americans using the Internet on a daily basis for private and/or business use and the rest of the world also beginning to catch on, e-commerce’s global growth curve is not likely to taper off anytime soon.

MK0009- International Marketing Assignment Set-2

1. Discuss the relative advantage and disadvantages of standardization vs. localization of advertising, with suitable examples.

Answer: Advantages of standardization are:

i. Economies of scale in production and marketing ii. Consumer mobility – the more consumers travel, the more it the demand iii. Technologyiv. Image, for example “Japanese”, “made in”.

The latter can be a factor both to aid or to hinder global marketing development. Nagashima1 (1977) found the “made in USA” image has lost ground to the “made in Japan” image.

The advantages of standardization in manufacturing are cost effectiveness and integration. Standardization of lathe cutting tool stock sizes and tool post mounts for instance allow tool post manufacturers to cover a huge of lathe designs and uses with a single product, whereas otherwise a potentially huge range of tool post products might be required to furnish the functionality of a given tool post design to diverse lathes and cutting tool dimensions.

The basic potential disadvantage of standardization in manufacturing is that it may lock in obsolescence. Tool stock developments may for instance render tool posts designs obsolete for the advantages of new tools, or a given tool post mount design may for instance preclude using the advantages offered by new tool post designs, which thus makes the lathes obsolete. Because good system designs can exercise foresight to ensure long term non-obsolescence, there are usually general advantages to be realized from standardization wherever a fitting, universal vision for standardization can be conceived.

2. What are some of the obstacles that come in the way of charging a uniform price across different markets?

Answer: Foreign exchange is currency bought or sold in the foreign exchange market. The “market” is the total of persons who buy and sell and involves various financial and other institutions. The “spot” market is for the immediate delivery or in the interbank market within two business days, of foreign exchange. The forward market is for future delivery. The principal players are the banks (Inter-bank market) and others including the London International Futures Exchange (LIFE).

The foreign exchange market is very dynamic. The price of one currency in any other currency is the result of forces of supply and demand in the foreign exchange market. The demand for one currency may be due to consumers wishing to buy from overseas, or a belief that one country’s currency is stronger than another’s. In Africa, where exchange controls occur in some countries, this can lead to an official or unofficial black market. Also, currency allocation is a feature which tends to slow down business or hinder its development.

If a country sells more than it buys, its currency value will rise and vice versa. If foreign exchange rates were set simply by money exchanged for goods and services, then forecasting exchange rates would be easy. However, short and long terms capital flows, speculative purchases and sales distort the picture.

Governments intervene to dampen fluctuation in exchange rates. Often they get involved in extensive trading to stem the rise in currency value, so exports are not harmed.

Exchange rates are very difficult to forecast due to a multitude of factors. Forecasts are, therefore, a continuation of economic analysis and judgment.

In forecasting foreign exchange rates it is important to take account of purchasing power parity (PPP), that is, one unit of currency should buy the same amount of goods and services as it bought in an equilibrium period, despite differential rates of inflation. The lower the level of inflation, the greater will be the PPP effect. If prices in local currency rise faster or more slowly than prices in the rest of the world, and equal adjustment of the exchange value of the currency in the opposite direction will restore equilibrium to relative price levels.

Unfortunately as levels of inflation are difficult to predict and foreign exchange transactions are other than solely for purchasing goods and services, the PPP is not a very reliable forecasting technique. Other factors affect the foreign rate of exchange other than just PPP. These are:

Economic factors – balance of payments, monetary and fiscal policy, inflation, real and nominal interest rates, government controls and incentives, etc.

- Political factors – philosophy of leaders, elections.

- Psychological factors – expectations, forward market prices, and traders’ attitudes.

One of the issues in analyzing a county’s competitive position is the critical adjustment of the exchange value of a country’s currency. The index is a trade weighted index (based on world trade share). Indices are issues by various bodies like the IMF.

Three basic factors determine the boundaries of the pricing decision – the price floor, or minimum price, bounded by product cost, the price ceiling or maximum price, bounded by competitions and the market and the optimum price, a function of demand and the cost of supplying the product. In addition, in price setting cognizance must be taken of government tax policies, resale prices, dumping problems, transportations costs, and middlemen and so on.

In setting prices, it must be made clear what the objectives and policy are. Few organization can now be pure profit maximizes - there is hardly a sector of industry where competition or potential competition is not prevalent. Three frequently encountered prices polices are as follows:

Skimming:- The market skimming pricing strategy is a deliberate attempt to reach a market segment that is willing to pay a premium price for a product. In such instances, the product must create high value for buyers. This pricing strategy is often used in the introductory phase of the product life cycle, when both production capacity and competition are limited. By setting a deliberately high price, demand is limited to early adopters who are willing are able to pay the price. One goal of this pricing strategy is to maximize revenue on limited volume and to match demand to available supply. Another goal of market skimming pricing is to reinforce customers’ perceptions of high product value. When this is done, the price is part of the total product positioning strategy.

Penetration Pricing: Penetration pricing uses price as competitive weapon to gain market position. The majority of companies using this type of pricing in international marketing are located in the Pacific Rim. Scale-efficient plants and low-cost labor allow these companies to blitz the market. It should be noted that a first-time exporter is unlikely to use penetration pricing. The reason is simple: Penetration pricing often means that the product may be sold at a loss for a certain length of time. Companies that are new to exporting cannot absorb such losses. They are not likely to have the marketing system in place (including transportation, distribution, and sales organizations) that allow global companies such as Sony to make effective use of a penetration strategy. However, a company whose product is not penetrable may wish to use penetration pricing to achieve market saturation before the product is copies by competitors.

In the U.S. process, cost is typically determined after design, engineering, and marketing decisions have been made in sequential fashion if the cost is too high, and the process cycles back to square one the square one-the design stage.

Market Holding: - The market holding strategy is frequently adopted by companies that want to maintain their share of the market. In single-country marketing, this strategy often involves reacting to price adjustments by competitors. For example, when one airline announces special bargain fares, most competing carried marketing, currency fluctuations often trigger price adjustments.

Market holding strategies dictate that source country currency appreciation will not be automatically passed on in the form of higher prices. If the competitive situation in market countries is price sensitive, manufacturers must absorb the cost of currency appreciation by accepting lower margins in order to maintain competitive prices in country markets.

A strong home currency and rising costs in the home country may also force a company to shift its sourcing to in-country or third-country manufacturing or licensing agreements, rather than exporting from the home country, to maintain market share. IKEA, the Swedish home furnishing company, sourced 50 percent of its products in the United States in 1992 compared with only 10 percent in 1989.

3. Your have just taken over as General Manager of a Company that is planning to launch a chain of Indian fast food restaurants in the US market. Which aspects of the marketing strategy are impacted by cultural differences and how would you deal with them?

Answer: Consumption patterns, living styles, and the priority of need are all dictated by culture. Culture prescribes the manner in which people satisfy their desires. Not surprisingly, consumption habits vary greatly. The consumption of beef provides a good illustration. Some Thai and Chinese do not consume beef at all, believing that it is improper to eat cattle that work on farms, thus helping to provide foods such a rice and vegetables. In Japan, the per capita annual consumption of beef has increased to eleven pounds, still a very small amount when compared to the more than 100 pounds consumed per capita in the United States and Argentina.

The eating habits of many people seem exotic to Americans. This Chinese eat such things as fish stomachs and bird’s nest soup (made from bird’s saliva). The Japanese eat uncooked seafood, and the Iraqis eat dried, salted locusts as snacks while drinking. Although such eating habits may seem repulsive to Americans and Europeans, consumption habits in the West are just as strange to foreigners. The French eat snails. Americans and Europeans use honey (bee expectorate, or been spit) and blue cheese or Roquefort salad dressing, which is made with a strong cheese with bluish mold. No society has a monopoly on unusual eating habits when comparisons are made among various societies.

Food preparation methods are also dictated by culture preferences. Asian consumers prefer their chicken broiled or boiled rather than fried. Consequently, the Chinese in Hotel distasteful.

Not only does culture influence what is to be consumed, but it also affect what should not purchased. Muslims do not purchase chicken unless they have been halalled, and like jews, no consumption of pork is allowed. They also do not smoke or use alcoholic beverages, a habit shared by some strict Protestants. Although these restrictions exist in Islamic countries, the situation is not entirely without market possibilities. The marketing challenge is to create a product that fits the needs of particular culture.

Unless marketers remain flexible in their own attitudes by accepting differences in basis patterns of thinking, local business tempo, religious practices, political structure, and family loyalty, they are hampered, if not prevented, from reaching satisfactory conclusions to business transactions. In such situations obstacles take any forms, but is not unusual to have one negotiator’s business proposition accepted over another’s simply because “that one understands us.” Adaptation is a key concept in international marketing and willingness to adapt is a crucial attitude. Adaptation is required on small mattes as well as large ones. In fact, the small, seemingly insignificant situations are often the most crucial. More than tolerance, affirmative acceptance of an alien culture is required. Through such affirmative acceptance adaptation becomes easier because empathy for another’s point of view naturally leads to ideas for meeting cultural differences.