Mktg 445 Final

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Chapter 11 - Pricing

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Pricing decisions are a critical element of the marketing mix that must reflect costs, competitive factors, and customer perceptions regarding value of the product. In a true global market, the law of one price would prevail. Pricing strategies include market skimming, market penetration, and market holding. Novice exporters frequently use the cost-plus method when setting prices. International terms of a sale such as ex-works, DDP, FCA, FAS, FOB, CIF, and CFR are known as Incoterms and specify which party to a transaction is responsible for covering various costs. These and other costs lead to export price escalation, the accumulation of costs that occurs when products are shipped from one country to another. Expectations regarding currency fluctuations, inflation, government controls, and the competitive situation must also be factored into pricing decisions. The introduction of the euro has impacted price strategies in the EU because of improved price transparency.

Front 2

Global companies can maintain competitive prices in world markets by shifting production sources as business conditions change. Overall, a company’s pricing policies can be categorized as ethnocentric, polycentric, or geocentric. Several additional pricing issues are related to global marketing. The issue of gray market goods arises because price variations between different countries lead to parallel imports. Dumping is another contentious issue that can result in strained relations between trading partners. Price fixing among companies is anticompetitive and illegal. Transfer pricing is an issue because of the sheer monetary volume of intracorporate sales and because country governments are anxious to generate as much tax revenue as possible. Various forms of countertrade play an important role in today’s global environment. Barter, counterpurchase, offset, compensation trading, and switch trading are the main counter- trade options.

Back 2

End of Summary

Front 3

What is a transfer price? Why is it an important issue for companies with foreign affiliates? Why did transfer pricing in Europe take on increased importance in 1999?

Back 3

Transfer pricing refers to the pricing of goods, services and intangible property bought and sold by operating units or divisions of the same company. These are intracorporate exchanges or transactions between buyers and sellers that have the same corporate parent.

Transfer pricing is an important topic in global marketing because goods crossing national borders represent a sale; therefore, their pricing is a matter of interest both to tax authorities, who want to collect a fair share of income taxes, and to the customs service, which wants to collect an appropriate duty on the goods.

Transfer pricing has proven to be a corporate key issue in Europe as the euro makes it easier for tax authorities to audit transfer-pricing policies.

Front 4

What is the difference between ethnocentric, polycentric, and geocentric pricing strategies? Which would you recommend to a company that has global market aspirations?

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Extension/Ethnocentric Pricing: calls for the per-unit price of an item to be the same no matter where in the world the buyer is located.

Adaption/Polycentric Pricing: permits subsidiary or affiliate managers or independent distributors to establish whatever price they feel is most appropriate in their market environment.

Geocentric Pricing: neither fixes a single price worldwide, nor allows subsidiaries or local distributors to make independent pricing decisions.
I would recommend this price strategy to a company with global aspirations because it leaves the most room for flexibility.

Front 5

Compare and contrast the different forms of countertrade.

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Countertrade: a sale that results in product flowing in one direction to a buyer, a separate stream of products and services, often flowing in the opposite direction, is also created.

•Barter: a direct exchange of good or services between two parties, no money involved

•Counterpurchase: (parallel trading/parallel barter) distinguished from other forms in that each delivery in an exchange is paid for in cash

•Offset: a reciprocal arrangement whereby the government in the importing country seeks to recover large sums of hard currency spent on expensive purchases such as military or telecommunications systems. Offset may be distinguished from counterpurchase because the latter is characterized by smaller deals over shorter periods of time

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Compare and contrast the different forms of countertrade. (Cont.)

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•Compensation Trading: (buyback) a form of countertrade that involved two separate and parallel contracts. In one contract, the supplier agrees to build a plant or provide plant equipment, patents or licenses, or technical, managerial, or distribution expertise for a hard-currency down payment at the time of delivery. In the other contract, the supplier company agrees to take payment in the form of the plant’s output equal to its investment (minus interest) for a period of as many as 20 years.

•Switch Trading: (triangular trade/swap) a mechanism that can be applied to countertrade where a third party steps in when one of the parties is not willing to accept all the goods received in the original transaction.

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If the manufacturer of a sophisticated new consumer electronics product determines that many target consumers qualify as “innovators” and “early adopters” with relatively inelastic demand curves, the company should use the ___________ pricing strategy.

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Market Skimming: deliberate attempt to reach a market segment that is willing to pay a premium price for a particular brand or for a specialized or unique product.

Front 8

A firm without much export experience uses the rigid cost-based pricing method. What are the considerations that the exporter is ignoring?

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•Is the price competitive in view of local market conditions?

•Does the price reflect the product’s quality?

•Will authorities in export markets view the price as reasonable or exploitative?

•Does the price take antidumping laws into consideration?

Front 9

When Tag Heuer, a marketer of luxury watches, takes out newspaper ads urging consumers to purchase Tag Heuer products from authorized dealers only, the company is most likely attempting to combat the _________ problem.

Back 9

Gray Market: products that are exported from one country to another without authorization from the trademark owner

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If a company sells products in export markets at prices that are below fair market value and that can harm producers in the export market, that company may be accused of ___________.

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Dumping: the sale of a product in an export market at a price lower than that normally charged in the domestic market or country of origin.

Front 11

Which company would be most likely to use some form of countertrade when selling its products in developing countries?

Back 11

Bell Helicopter Textron

Front 12

The direct exchange of goods or services between parties in lieu of monetary payment is known as _____________.

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Barter: the least complex and oldest form of bilateral, non-monetized countertrade consisting of a direct exchange of goods or services between two parties.

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Chapter 12 - Channels

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: A channel of distribution is the network of agencies and institutions that links producers with users. Physical distribution is the movement of goods through channels. Business-to-consumer marketing uses consumer channels; business-to-business marketing employs industrial channels to deliver products to manufacturers or other types of organizations. Peer-to-peer marketing via the Internet is another channel. Distributors and agents are key intermediaries in both channel types. Channel decisions are difficult to manage globally because of the variation in channel structures from country to country. Marketing channels can create place utility, time utility, form utility, and information utility for buyers. The characteristics of customers, products, middlemen, and environment all affect channel design and strategy. Consumer channels may be relatively direct, utilizing direct mail or door-to-door selling, as well as manufacturer-owned stores.

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A combination of manufacturers’ sales forces, agents/brokers, and wholesalers may also be used. Channels for industrial products are less varied, with manufacturer’s sales force, wholesalers, and dealers or agents used. Global retailing is a growing trend as successful retailers expand around the world in support of growth objectives. Retail operations take many different forms, including department stores, specialty retailers, supermarkets, convenience stores, discount retailers, hard discounters, hypermarkets, supercenters, superstores, shopping malls, outlet stores, and outlet malls. Selection, price, store location, and customer service are a few of the competencies that can be used strategically to enter a new market. It is possible to classify retailers in a matrix that distinguishes companies offering few product categories with an own-label focus, many categories with an own-label focus, few categories with a manufacturer-brand focus, and many categories with....

Back 14

Global retail expansion can be achieved via organic growth, franchising, acquisition, joint venture, and licensing. Transportation and physical distribution issues are critically important in a company’s value chain because of the geographical distances involved in sourcing products and serving customers in different parts of the world. A company’s supply chain includes all the firms that perform support activities such as generating raw materials or fabricating components. Logistics and logistics management integrate the activities of all companies in a firm’s value chain to ensure an efficient flow of goods through the supply chain. Important activities include order processing, warehousing, and inventory management. To cut costs and improve efficiency, many companies are reconfiguring their supply chains by outsourcing some or all of these activities. Six transportation modes—air, truck, water, rail, pipeline, and Internet—are widely used in global distribution.

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In what ways can channel intermediaries create utility for buyers?

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Intermediaries play important roles in both consumer and industrial channels; a distributor is a wholesale intermediary that typically carries product lines or brands on a selective basis. An agent is an intermediary who negotiates exchange transactions between two or more parties but does not take title to the goods being purchased or sold.

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What factors influence the channel structures and strategies available to global marketers?

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• Warehousing
• Inventory Management
• Transportation

Front 17

Identify the four retail market expansion strategies discussed in the text.

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• Organic Growth: when a company uses its own resources to open a store on a greenfield site or to acquire one or more existing retail facilities from another company.

• Franchising: a contract between a parent company franchisor and franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies and practices. This is an appropriate entry strategy when barriers to entry are low yet the market is culturally distant in terms of consumer behavior or retailing structures.

• Acquisition: market entry strategy that entails investing in assets outside the home country
• Joint Ventures: strategy in which two companies share ownership of a newly created business entity

• Licensing: contractual market entry strategy whereby one company makes an asset available to another company in exchange for royalties or some other form of compensation.

Front 18

What factors determine the appropriate market expansion strategy?

Back 18

(1) markets that are easy to enter versus those that are difficult to enter

(2) culturally close markets versus culturally distant ones.

Front 19

Coca-Cola Company’s global marketing leadership position is based in part on its ability to put Coke “within an arm’s reach of desire”; in other words, it is the ability to create:

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Place Utility: the availability of a product or service in a location that is convenient to a potential customer.

Front 20

What difference would you expect to see in channel length between consumer channels versus industrial channels?

Back 20

Longer for consumer, industrial more direct

Front 21

In developing countries, one would expect to see short or long channels. Explain.

Back 21

It’s longer, infrastructure such as storage, refrigeration less developed.

Front 22

By definition, _________ feature a narrow but deep merchandise mix and high levels of service.

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Specialty Retailers: a category of retail operations characterized by a more narrow focus than a department store and offering a relatively narrow merchandise mix aimed at a particular target market.

Front 23

Physical distribution and logistics are concerned with:

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Order processing, warehousing, inventory management, and transportation.

Front 24

What is meant by length and width of channels?

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Length: number of intermediaries it goes through before it reaches the consumer; vertical

Width: at the retail level, selective, exclusive, intensive distribution

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Chapter 13 - Communication

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: Marketing communications—the promotion P of the marketing mix—includes advertising, public relations, sales promotion, and personal selling. When a company embraces integrated marketing communications (IMC), it recognizes that the various elements of a company’s communication strategy must be carefully coordinated. Advertising is a sponsored, paid message that is communicated through nonpersonal channels. Global advertising consists of the same advertising appeals, messages, artwork, and copy in campaigns around the world. The effort required to create a global campaign forces a company to determine whether or not a global market exists for its product or brand. The trade-off between standardized and adapted advertising is often accomplished by means of pattern advertising, which can be used to create localized global advertising. Many advertising agencies are part of larger advertising organizations.

Front 26

Advertisers may place a single global agency in charge of worldwide advertising; it is also possible to use one or more agencies on a regional or local basis. The starting point in ad development is the creative strategy, a statement of what the message will say. The people who create ads often seek a big idea that can serve as the basis for memorable, effective messages. The advertising appeal is the communication approach—rational or emotional—that best relates to buyer motives. Rational appeals speak to the mind; emotional appeals speak to the heart. The selling proposition is the promise that captures the reason for buying the product. The creative execution is the way an appeal or proposition is presented. Art direction and copy must be created with cultural considerations in mind. Perceptions of humor, male–female relationships, and sexual imagery vary in different parts of the world. Media availability varies considerably from country to country.

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When selecting media, marketers are sometimes as constrained by laws and regulations as by literacy rates. A company utilizes public relations (PR) to foster goodwill and understanding among constituents both inside and outside the company. In particular, the PR department attempts to generate favorable publicity about the company and its products and brands. The PR department must also manage corporate communications when responding to negative publicity. Important PR tools include interviews, media kits, press releases, social media, and tours. Many global companies make use of various types of corporate advertising, including image advertising and advocacy advertising. Public relations is also responsible for providing accurate, timely information, especially in the event of a crisis.

Front 27

How does the “standardized versus localized” debate apply to advertising? What is meant by “pattern” advertising?

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Standardized: a target market strategy that calls for creating the same marketing mix for a broad market of potential buyers.

Localized: management’s use of highly localized marketing programs in different country markets

Pattern Advertising: a communication strategy calls for developing a basic pan-regional or global concept/layout for which copy, artwork, or other elements can be adapted as required for individual country markets. Example: pioneer Hi-Bred ads in United States and Canada.

Front 28

How does public relations differ from advertising? Why is public relations especially important for global companies?

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PR is earned media and Advertising is unearned media.

PR professionals with international responsibility must go beyond media relations and serve as more than a company mouthpiece; they are called upon to simultaneously build consensus and understanding, create trust and harmony, articulate and influence public opinion, anticipate conflicts and resolve disputes.

Front 29

What is IMC?

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Integrated Marketing Communications: an approach to the promotion element of the marketing mix that values coordination and integration of a company’s marketing communication strategy. The goal is to use “one voice” across all media.

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Types of Media – 4 variables of promotion mix

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•Advertising: any sponsored, paid message that is communicated through a nonersonal channel.

•Professional Sale: two-way communication between a prospective buyer and a company sales representative. Often face-to-face.

•Public Relations: within an organizations, the department or function responsible for evaluating public opinion about, and attitudes towards, the organization, its products, or brands. Public relations personnel also are responsible for fostering goodwill, understanding, and acceptance among a company’s various constituents and publics.

•Sales Promotion: a paid, short-term communication program that adds tangible value to a product or brand. Common sales promotion tools include coupons, free samples and premiums. The two main categories are consumer sales promotion and trade sales promotion.

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What are the Media Objectives?

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•Attention

•Awareness

•Knowledge

•Interest

•Liking

•Preference

•Conviction

•Desire

•Purchase

•Post-Purchase

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What are the Factors Affecting Choice of IMC?

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•Product

•Audience Expectation

•Push vs. Pull

•Product Life Cycle

•Media Availability

•Entry Strategies

•Government Regulations

•Language

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What are the Steps in Planning IMC?

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•Target Market

•Desired Objective

•Budget

•Media Strategy

•Message Appeal and Execution

•Approach

•Effectiveness

Front 34

What makes up a Budget?

Back 34

•Percentage of Sales

•Competitive Comparison

•Affordability

•Objective and Tasks

Front 35

“______________” is the phrase global marketers use to describe ads with common design elements into which localized elements are inserted for individual country markets.

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Pattern Advertising: a communication strategy calls for developing a basic pan-regional or global concept/layout for which copy, artwork, or other elements can be adapted as required for individual country markets.
Example: pioneer Hi-Bred ads in United States and Canada.

Front 36

A recent global campaign for IKEA, the Swedish home furnishings retailer, positioned houses as homes with a place for love, memories, and laughter. This is a classic example of what kind of appeal?

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Emotional Appeal: in advertising, an appeal intended to evoke a feeling response (as opposed to a rational/intellectual response) that will direct purchase behavior. Contrasts with rational appeal.

Front 37

Which promotional mix element is most closely associated with activities designed to foster goodwill and understanding with various constituents both inside and outside the company?

Back 37

Public Relations

Front 38

The best approach to setting a budget is __________ and why?

Back 38

Task and objective. Why? To set goals and message

Front 39

The “Push” promotional strategy attempts to ______________________.

Back 39

Promote/push through the channel

Front 40

If a product is very technical, which form of IMC would be the best and why?

Back 40

Personal selling

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Chapter 14 - Communication

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Sales promotion is any paid, short-term communication program that adds tangible value to a
product or brand. Consumer sales promotions are targeted at the ultimate consumers; trade
sales promotions are used in business-to-business marketing. Sampling gives prospective
customers a chance to try a product or service at no cost. A coupon is a certificate that entitles
the bearer to a price reduction or other value-enhancing consideration when purchasing a
product or service.
Personal selling is face-to-face communication between a prospective buyer and a company
representative. The strategic/consultative selling model that is widely used in the United States
is also being utilized worldwide. The model’s five strategic steps call for developing a personal
selling philosophy, a relationship strategy, a product strategy, a customer strategy, and a
presentation strategy.

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The six steps in the presentation plan are approach, presentation, demonstration, negotiation, close, and servicing the sale. Successful global selling may require adaptation of one or more steps in the presentation plan. An additional consideration in global selling is the composition of the sales force, which may include expatriates , host-country natives, or sales agents . Several other forms of communication can be used in global marketing. These include direct marketing, measurable system that uses one or more media to start or complete a sale. One-to-one marketing is an updated approach to direct marketing that calls for treating each customer in a distinct way based on his or her previous purchase history or past interactions with the company. Direct mail, catalogs, infomercials, teleshopping, and interactive television are some of the direct marketing tools that have been successfully used on a global basis.

Back 42

Global marketers frequently try to place their products in blockbuster movies that will reach global audiences. Sponsorships and product placement are also becoming vital communication tools that can be used on a global basis.

Front 43

List the different types of sales promotion; when are they used?

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Sales Promotion: a paid, short-term communication program that adds tangible value to a product or brand.

Consumer Sales Promotion: promotion designed to make consumers aware of a new product, to stimulate nonusers to sample an existing product, or to increase overall consumer demand.

Trade Sales Promotion: promotion designed to increase product availability in distribution channels.

Sampling: a sales promotion technique that provides potential customers with the opportunity to try a product or service at no cost.

Couponing: a sales promotion tool consisting of a printed certificate that entitles the bearer to a price reduction or some other value-enhancing consideration when he or she purchases a particular product or service.

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What are special forms of marketing communication; when are they used?

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Direct Marketing: any communication with a consumer or business recipient that is designed to generate a response in the form of an order, a request for further information, and/or a visit to a store or other place of business. Direct marketing can take various forms including direct response advertising, direct mail, catalogs, infomercials, and teleshopping.

Support Media: transit and billboard advertising

Event Sponsorship: a form of marketing communication that involves payment of a fee by a company to have its name associated with a particular event, team or athletic association, or sports facility.

Product Placement: a marketing communication tactic that involves a company paying a fee to have one or more products and brand names appear in popular television programs, movies, and other types of performances.

Front 45

As Coca-Cola Company’s participation in World Cup soccer demonstrates that sponsorship can be an effective component of an IMC program. True or False?

Back 45

True

Front 46

In the case of product placement, the viewers are being marketed to subliminally without their consent. True or False? Explain.

Back 46

True, example – watching a commercial on Coke and suddenly get a craving for Coke, without knowing it

Front 47

A box of Crest Toothpaste contains a coupon entitling the buyer to save 50 cents when purchasing a Crest toothbrush. What type of sales promotion does this represent?

Back 47

Cross Coupon

Front 48

Compusys Corporation is elated at the news that its latest computer system has been chosen to appear in the next Star Wars film as the “breakthrough” system that led to intergalactic travel. The film’s “coup” would be BEST described as a(n):

Back 48

Product Placement: a marketing communication tactic that involves a company paying a fee to have one or more products and brand names appear in popular television programs, movies, and other types of performances.

Front 49

What is often used to identify potential distributors in a new foreign market?

Back 49

International Trade Fairs

Front 50

Which type of media in the communication mix is the most difficult to globalize?

Back 50

Personal Selling