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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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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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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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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 and factoringDiscounting and factoring
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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Discounting and factoringDiscounting and factoring
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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Discounting and factoringDiscounting and factoring
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
Discounting and factoringDiscounting and factoring
n erme a e ccoun ng as an ece va es
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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.
Discounting and factoringDiscounting and factoring
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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.
Discounting and factoringDiscounting and factoring
n erme a e ccoun ng as an ece va es
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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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CountertradeCountertrade
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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CountertradeCountertrade
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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Any questions ?Any questions ?
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