Tag: Media Planning & Management Mumbai University BMS Notes

Kotler defines service as “Any activity or benefit that one party can offer to another which is essentially intangible and does not result in the ownership of anything”.

International services are defined as “deeds, performances, efforts, conducted across national boundaries in critical contact with foreign cultures”. Intangibility and heterogeneity become important issues to overcome in the international market. Questions like how, when and in what form, a service is offered have to be considered. In an international context, led an investigation of service firms’ entry modes. Investigated professional service firms’ foreign market entry. Other studies have dealt with the internationalization process in different industries. Identified three general entry modes:

• Client-following mode
• Market-seeking mode
• Electronic marketing mode

Lovelock (1983) identifies three categories of services:

• Possession-processing services targeted at physical objects belonging to the customer.
• People-processing services that involve each customer directly in delivery of services targeted at the customer’s physical person.
• Information-based services targeted either at customers’ minds (mental stimulus processing) or at their intangible assets (information processing).

Features of International Service Marketing

Broader market is available

A wide platform is available for marketing and advertising products and services. The market is not limited to some precise local market or for people residing in a particular place, region or country but is free for all. People from different nations sharing different cultures and traditions can actively participate in it.

Involves at least two set of uncontrollable variables

By uncontrollable variables, we mean the geographical factors, political factors prevailing in different countries. At the global level, all the companies have to face uncontrollable variables from different countries. While establishing business globally, a company has to learn to deal with these variables.

Requires broader competence

International market requires more expertise and special management skills and wider competence to deal with various circumstances and handle different situations like changes in the strategies of the government, the mindset of the people and many other such factors.

Competition is intense

Competition is very tough in international market, as the organizations at the global level have to compete with both competitors in their home countries and also in the foreign lands. Competition is high because the clash is between developed & developing countries and both have different standards and are unequal partners.

Involves high risk and challenges

International marketing with its own advantages is also prone to different and tangible risks and challenges. These challenges come in the form of political factors, regional and cultural differences, changing fashion trends, sudden war situation, revision in government rules and regulations and communication barriers

The nature of international marketing is dependent on various factors and conditions and above all, it is dependent on the policies framed by different countries which are active participants in international marketing. International marketing tends to ensure balanced import and export to all countries big or small, rich or poor, developed or developing.

Management of international market is tough and requires thorough market research. It is a predefined process which is directed towards designing and delivering products based on the demands from the overseas customers. Proper management also helps the company attain its objectives.

Domination of multinationals and developed countries

International marketing is highly dominated by multinational corporations due to their worldwide reach. These organizations apply efficient and effective business practices to all their business operations. They have a stable position and with their global approach find themselves fitting into the arena of international marketing.

International restrictions

The international market needs to abide by different tariff and non-tariff constraints. These constraints are regulated because different countries follow different regulations. All nations tend to rationally abide by tariff barriers. All the imports and exports between the nations participating in international marketing follow some restrictions in foreign exchange.

Sensitive character

International marketing is highly sensitive and flexible. The demand for a product in a market is highly influenced by political and economic factors. These factors can create as well as decrease the demand for a product. In fact, use of advanced technology by a competitor or the launch of a new product by another competitor may affect the sale of a particular firm’s product worldwide.

Importance of Advanced Technology

International market is dominated by developed countries like the USA, Japan, and Germany as they use highly advanced technology in production, marketing, advertising and establishing a brand name. They provide admirable quality of products at reasonable prices. Presently, Japanese products have got substantial existence in markets around the world. The Japanese could achieve this only because of automation and effective use of advanced computer technology.

Need for specialized institutions

Marketing at global level is highly prone to risks & is very complex and knotty. It undergoes lengthy and time taking procedures & formalities. Competent expertise is required for handling various sections of international marketing.

Need for long term planning

International marketing calls for long term planning. Marketing practices differ from nation to nation influenced by social, economic & political factors.

Lengthy & Time Consuming

The activities in international marketing are very time-consuming and knotty or complex. The main cause of these difficulties are the local laws and policies enforced on different nations, issues in payment as different countries use different currencies, distance between the participating nations and time taking formalities involved therein.

The current trend of globalization does not limit companies to their national borders and invites them for marketing on a higher platform, i.e., international platform. Every nation is free to trade with any nation. New markets are indicating signs of growth and are marking signs of development in economies like China, Indonesia, India, Korea, Mexico, Chile, Brazil, Argentina, and many other economies all over the world.

Need of International Service Marketing

International Audience

Services are intangible products generally delivered through interactive channels. They are offered either as primary products or as supplementary components, according to the Management Study Guide. For example, legal representation is a primary service while computer networking is complimentary. International service marketing looks to create awareness of new and existing services in the target markets and public domains of foreign countries.

Cultural Expectations

International service marketing enables businesses to acknowledge cultural differences when advertising in foreign countries. For example, when the American Family Life Assurance Co. (AFLAC) introduced its famous “Duck” ad campaign in Japan it used a stuffed doll because the use of live animals in commercials was not common practice there. The campaign went on to gain iconic status when AFLAC created the Maneki Neko Duck from the combination of the Duck and Maneki Neko, a famous white cat associated with luck in some Asian countries. AFLAC’s efforts to meet the expectations of Japanese society underscored the significance of aligning service marketing to cultural sensitivities.

International Networks

Service businesses that build and maintain international networks build close relationships with customers. This allows them to raise sales while expanding their market presence abroad. Taking advantage of Internet-based promotional and networking platforms, such as social media, lets them reap maximum benefits in market penetration strategies. Digital platforms are particularly useful for small and medium-size service companies engaging in international promotion because they are fairly affordable and easily accessible.

Promoting Differentiation

International service marketing is an important platform for brand differentiation among service companies offering similar and related products in foreign markets. Indeed, brand recognition enables service companies to stand out and remain competitive. That makes promotional campaigns that engages the audience while establishing brand awareness as critical as the investment required to operate on an international basis.

Set Goals for Your International Strategy

Before you do anything, take the time to understand what you want to get out of your international strategy. Every business wants to gain more customers, but your goals should be more specific than that. What are your sales goals for year one, year five, and beyond? What kind of customer retention can you realistically expect? How much time and money do you expect to spend on the expansion? How long will it take to see a return on investment?

Make sure your goals align with your product/service and your industry. Set realistic targets, so you can use these goals as a benchmark for your progress.

Avoiding international pitfalls

Remember that markets are as diverse as their consumers, and that there is no such thing as a one-size fits all product. You’ll need to tailor your products and your strategy to the global market.

For example, food companies will often have to adapt their products to better adapt to local tastes. McDonald’s has a rather different menu in its Indian restaurants compared to its American restaurants, which is further different to sites that open in Japan. These can be a result of cultural differences Islamic countries will likely restrict products that are considered haram (forbidden) or the availability (or lack thereof) of certain ingredients.

It’s also important to make sure your products or marketing don’t fall afoul of any cultural misunderstandings when being sold abroad. You don’t want your product name to turn out to be a profanity when translated into a local language! Make sure you have a localization expert who can review these and point out any potential faux pas before they hit the market.

Identify Your Product/ Service

While this might seem obvious, you need to know what you’re going to sell in the new market. If your company only has one product or service, this step will be easy. If you have numerous offerings, decide which ones you will begin your expansion with.

Research New Markets

With your goals in hand, look for international markets where you can meet or exceed those goals. Cast your net wide by looking at several markets. Many governments and trade associations offer resources to help you understand foreign markets. Read through their reports to see how your product/service will resonate with the local consumer base.

While you will need to have someone pour over reports and statistics, you can’t truly understand a foreign market remotely. Attend trade shows in your target markets to make new contacts and learn about the local business culture.  You can learn a lot about how to market your product/service offerings by experiencing the local life and culture.

Market research should also include the local regulatory environment. Every market has its own set of legal requirements to protect workers and consumers.

Understand Your Competition

To do well in any market, you need to understand the local competition and how they approach the market. Each market has its own mix of competitors and cultures that define how an industry works.

Plan Your Marketing Strategy

Even before you choose a target market, think about your overall marketing strategy. Do you want to have a different advertising message in each market you enter? Do you want to maintain a global brand? Or do you want a consistent, global brand that is slightly tailored for each marketplace? Choose whichever strategy will most clearly communicate your competitive advantage to new markets.

Plan Your International Organizational Structure

Entering one or more international markets will affect your organizational structure. A proactive plan will keep your staff focused on their individual responsibilities and promote efficient work. Consider how you will staff for each new market and how teams from different markets will communicate to share ideas.

Determine Your Distribution Strategy

There are many ways to get your offerings to a new market. The U.S. Department of Commerce website lists several channels:

• Direct to end-user
• Distributors in-country
• Your e-commerce website
• A third-party e-commerce platform
• Supplier to a large U.S. company with international sale
• Franchise your business.

Determine which channel best fits your business before entering the new market. Each one comes with its own set of advantages and disadvantages.

Assemble a Strategy Document

According to U.S. Department of Commerce, only one-third of small and medium-sized businesses develop a written international strategy before moving into international markets. A written plan keeps your team aligned and can guide your organization as it begins an international expansion.

Carl Gravel, Director of International Expansion at Business Development Bank of Canada, says “Once you have a plan, it is easier to follow the action items and not be overwhelmed.” A plan can keep your company focused on the right goals and strategies rather than simply reacting to the market.

Expanding operations into an international market can be challenging, but it opens the door to many new and exciting opportunities. To help your company achieve healthy international growth, utilize Velocity Global’s global Employer of Record solution. Get in touch with our team today to see how we can help.

Importance

Increases Focus

International marketing increases a brand’s focus on a marketing message. Since every marketing message, media advertisement, and media channel is selected based on careful market research, brands are able to demonstrate more intentionality in their marketing decisions.

More Marketing Expertise and Personnel

Unlike global marketing where all decisions are made from personnel at the company’s headquarters, international marketing generally calls for more marketing employees and research teams. The obvious drawback to this is the added salary expense, but for the most part, the added employees frees up HQ marketing personnel from execution of the marketing plan and keeps them more focused on managing and strategizing.

Brand Authority

One of the major importance of international marketing is creating brand authority in a variety of different markets. The key to note here is the difference between brand awareness and brand authority. Suppose a well-established American company begins broadcasting their messages to multiple coun19tries. Just because Brazil sees their ad all the time doesn’t mean that it holds any relevance for their situation. Thus, while the company’s brand awareness may soar, their brand authority remains low in Brazil and high only in America. This all has to do with specialization and market research in each foreign country. An increased understanding of a culture, customized message, and a detailed country-specific marketing plan all work together to create stronger brand authority.

Creating an effective international marketing plan requires details about each country in which your company wants to sell products or services. Many of the sections in an international marketing plan look similar to a local marketing plan, but that’s where the similarities end. For instance, the objectives section might include marketing penetration goals or building brand awareness, but they need to be tempered with a careful look at each country’s local situation.

Objectives

This section explains the objectives of selling your product in a foreign market so you know how many resources you need to commit. The objectives may include reaching a certain return on investment or introducing your product to help buyers in the new market become familiar with your brand. Your company also may want to gain a share of the market due to increasing competition in that country from other companies selling similar products.

Situational Analysis

Outline the opportunities your company sees in selling products and services in other countries. Your plan should present an analysis of the culture of the country and the political and economic conditions that indicates the country supports foreign companies. Include research about the target market, such as the income level required for consumers to afford your offering. Examine each country’s unemployment and inflation rates, and explain how they may affect sales.

Operations

The operations section of the marketing plan explains how your company will work with other departments, such as manufacturing and distribution, to get your product into the hands of buyers. Explain how you plan to handle logistics, transportation and warehousing challenges unique to each country in getting your product to market, and outline how you will deliver the product to retailers to sell in their shops.

Localization

Explain your promotional efforts, and indicate whether you plan to stick with one message for your product no matter what countries you sell it in or how you plan to localize your message to fit each country. You may need to break the message down further by using specific messages that apply to each region within a country. Outline any new branding needed to meet the cultural or economic expectations of each localized area in which you plan to sell your company’s offerings.

Pricing

Your plan should provide details about your pricing structure and explain how it differs from country to country if that’s your strategy. Note factors that influence the pricing, such as import tariffs and shipping requirements. This section also covers how you set your prices based on what the market can bear in that country. Describe your competition’s pricing as well as how the product value is perceived by your target market.

Tracking

Include a method for frequently reviewing your plan to identify changes in the political or economic environment. That way, you can swiftly make adjustments to stay on track with your company’s marketing objectives and get the product to end users with as little interference as possible.

Strategies:

Focus on the customer

Yes, this sounds easy. But as a marketer, you know the customer relationship is key. Not all customers want the same thing. They all have different needs and wants, and the marketer must address those needs moving into the global market.

Make sure time is spent with new customers, and get to know them, just as you would with a domestic customer. Understand their needs, their environment, and most importantly, their challenges.

Have a great staff

The four P’s rear their ugly head again! And here the key word is people. Every person in your company, and the international chain, must be experienced and have the company’s objectives in mind. New global employees should know the global market well, and be able to assist with any language or cultural issue that arises. A company can work with international trade associations to find suitable people. Remember to network!

Understand different cultures

In the global marketplace a company must expect to work with many different people, who often speak different languages and have different cultural ideas. Knowing this ahead of time is the best way to form trusting relationships. If possible, learn the local language, or at least some key words. Become knowledgeable about the local culture. It will help show that you have a commitment to them.

Act Local

Even if the business is U.S. based, find opportunities to act local. A promotion campaign in the U.S. won’t work in another country. Some languages don’t translate easily, like English and Japanese. So be sure to work with locals to help you bridge these cultural divides.

Competing globally can be challenging at first, especially when you are working through the cultural divides. Investing in the areas will help foster a relationship of trust with your partners and employees. Ultimately, this trust will help the company excel in the global market.

The marketer will want to focus on three items:

1. Completion date: The marketer must set a date for when the plan should be completed. It can be a long process, involving many people and departments. So, it is key the marketer has a goal end-date.
2. Who is responsible: Each member of the marketing team should have a defined role, which they should clearly understand and be prepared for. They must be responsible for their part; otherwise, the plan will never come together.
3. The budget: A marketing plan can cost a lot of money, so establish a budget and stick to it. You don’t want to end up with no money, and have to finish the marketing plan without funds.

Drivers of Global Service Marketing

One factor of particular significance to many service industries is the presence of global customers who demand consistent service from suppliers around the world, and the availability of global channels in the form of fast-developing physical supply chains or electronic networks. As large corporate customers themselves become global, they often seek to standardize and simplify the suppliers they use in different countries for a wide array of business-to-business services.

A related trend can be found among some of the people-processing services used by interna­tional business travellers and tourists, who often feel more comfortable with predictable standards of performance worldwide for such travel-related services as airlines and lodging.

In possession-processing services, the development of global logistics capabilities by firms such as Federal Express has encouraged a number of manufacturers to outsource responsibility for their logistics function to a single firm, which then coordinates transportation and warehousing operations around the world.

Competition drivers:

These exercise a powerful force in many service industries. To the extent that customers who operate around the world are known to value global provision of services, a firm may be obliged to follow its competitors into new markets in order to protect its position in existing markets.

Similarly, once a major player moves into a new foreign market, a scramble for territory among competing firms may ensue, particularly if the preferred mode of expansion involves pur­chasing or licensing the most successful local firms in each market.

Technology drivers:

For information-based services, the growing availability of broadband telecommunication channels, capable of moving vast amounts of data at great speed, is playing a major role in opening up new markets. Access to the Internet or World Wide Web is accelerating around the world.

But there may be no need to duplicate all informational elements in each new location. Significant economies may be gained by centralizing “information hubs” on a global basis. It may also be advantageous to take advantage of favorable labour costs and exchange rates by consolidating operations of supplementary services (such as reservations) or back office functions (such as accounting) in just one or a few selected countries.

Cost drivers:

The effect of these drivers varies according to the level of fixed costs required to enter an industry and the potential for cost efficiencies. Lower operating costs for telecommunica­tions and transportation, accompanied by improved performance, serve to facilitate entry into global markets.

Barriers to entry caused by the upfront cost of equipment and facilities may be reduced by such strategies as equipment leasing (as in airlines), seeking investor-owned facilities such as hotels and then selling them on management contracts, or awarding franchises to local entrepreneurs.

How­ever, cost drivers may be less applicable for services that are primarily people based and so require recreating most element of the “Service factory” in multiple locations. Under such circumstances, scale economies tend to be lower and experience curves relatively flatter. In service business on which new product development costs are low, cost drivers are also likely to be less significant.

Government drivers:

We can expect government drivers to be more favourable for people- processing and possession-processing services that require a significant local presence, because these services can create local employment opportunities. In contrast, governments often impose regula­tions to protect home-based services, such as passenger and freight transportation, from attacks by foreign carriers operating on the same routes.

A typical action involves restricting foreign airline’s landing rights or their ability to pick up passengers at an intermediate stop on a scheduled flight between two other countries.

If transportation services are easily exported, information-based services are even more so. Data, after all, can move around the world almost instantaneously through electronic channels. Govern­ments can play an important role in requiring adoption of internationally compatible technical stan­dards.

However, unrestricted imports of services in categories ranging from entertainments to fi­nance are often seen as both an economic and cultural threat. Hence such government actions as regulating international banking (widely practiced), banning private ownership of satellite dishes (already implemented in China, Iran, Singapore and Saudi Arabia), or seeking to limit access to ser­vices on the Internet.

Overall Assessment of Drivers:

The impact of each of the five groups of drivers. However, government drivers, expressed in terms of economic policy, regulation, and protections, are often specific to individual industries. Hence, it’s important to evaluate globalization drivers at the level of individual industries, as well as in terms of broader service categories.

Advantages of Global Service Marketing

Lower Costs:

With a common messaging to be done across the globe, marketing budget reduces significantly which helps to maintain profit margins.

Global Reach:

With the free availability of the internet, the reach of business has grown multiple-folds. Companies like Alibaba and Amazon which operate in China have managed to reach worldwide only with the help of internet. Ease of reach helps in building brand image to a wide array of customers.

Global Feedback:

 With uniform messaging throughout the world, the feedback received is equally important for companies and Global Marketing enables them to receive valuable feedback and adapt and change according to customer feedback.

Overcoming Time constraints:

Unlike traditional marketing, where the print requires days and weeks to approve and then distribute the end customer, in this case, the campaign reaches the customers within a few mouse clicks reducing the time to implement. Faster implementation of marketing campaigns means faster results and ultimately faster profits.

Disadvantages of Global Service Marketing

Limited Audience:

 Not everyone will be wanting the product and they may not be the suitable target audience. In those cases, the company can cater to only a limited percentage losing out on the other chunk of customers. For ex: Most of the business persons in the US may be seen taking a coffee to work – mostly Starbucks. While Starbucks works well over there, the same may not be the case in African countries where although there is a presence of Starbucks it has not been able to penetrate the usage limits like in the United States and other European countries.

Cultural barriers:

This is a major hurdle in cross country marketing. Not every culture is suitable for the products of the company. Crossing these cultural barriers can be cumbersome and costly for the company and it may have to adopt certain specific rules for specific countries. Managing them in global marketing can be challenging. For ex. McDonald’s has customized its menu for Arabic countries without Pork while for India without beef. Burger King and KFC have followed a similar trend.

Political and Legal Constraints:

President Trump launched the campaign Make America Great Again due to which a lot of international companies suffered and some had to shift their manufacturing plants back in the US. In such cases, huge costs are to be borne by the companies.

Inventory management:

 Huge unused stocks may pile up with company skyrocketing inventory costs. This may happen due to over or underestimation of projections or misjudging the locality or hurrying in launching without proper global marketing research.

Service Culture

A service culture exists when you motivate the employees in your organization to take a customer-centric approach to their regular duties and work activities. Sales and service employees put customer needs first when presenting solutions and providing support. Other employees work behind the scenes to ensure customers get a good product experience. Developing a service culture requires time and consistency.

Seek Feedback

The first step in developing a service culture is to show genuine interest in finding out what your customers want from your company, products and services. Ongoing research can help you gain insight as to how your company currently performs and what improvements you must make to strength loyal relationships. Your employees can more easily by into the customer-first mentality you project if they see you working to gather information about your customers.

Communicate and Establish Consistency

Most elements of a company culture begin at the top. As a business owner or manager, your actions and words set the tone for what employees view as core philosophies of the business. If you project a service attitude in your dealings with customers or clients, that helps. You can establish a vision and company objectives that emphasize customer service. In delegating responsibilities to departments, work teams and employees, you want to convey the specific duties each holds in the bigger picture.

Reward and Recognize

No matter what you say to instill viability in any cultural component, you must reinforce its importance through action. To perpetuate a service culture, you need to include service standards in job descriptions, employee evaluations and compensation. If you emphasize customer service in assessments, raises and promotion decisions, even above other production and sales standards, it strengthens your commitment. Publicly recognizing top service performers with praise and awards may encourage workers to work on their reputations as elite service performers. You may also have to eliminate workers that don’t fit into or desire to fit into the culture.

Set Policies and Train

You service culture is also developed through formal written documents and communications. Your company mission, website, employee policy manual and customer service policy all provide opportunities to infuse customer-oriented policies for internal or external communication. Once you establish customer-friendly policies, you need to orient and train new employees to accept the standards. Part of developing an enduring service culture is getting new hires to quickly assimilate into it.

Steps to create a Service culture:

1) Create a relentless strategy. A relentless strategy is a lifetime commitment to customer service. It is a propulsive, self-directed passion to continue to learn, improve, and exceed expectations in everything you do. You have to be relentless in serving your customers; it has to be a way of life.

2) Reduce friction. Remove stupid rules, policies, and procedures. Most rules are put in place to prevent customers from “taking advantage” of a company. What most managers and executives don’t understand is that those rules actually reduce the chances a customer will do business with you. Advertising and prices might get customers through the doors of your business once, but if they have a problem with a product or service – and if your rules don’t allow you to quickly solve it for them they won’t be back. Make it easy to do business with you.

3) Empower employees. Empowerment is the backbone of great service. Everyone must be empowered. If a front-line employee (your most important employee) does not have the power to satisfy a customer on the spot and to the customer’s satisfaction that customer will do one of two things: move the complaint up the ladder, often all the way to the CEO, which costs a lot in terms of time and money; or simply never do business with you again.

4) Do everything with speed. People today expect and want speed. You must drastically reduce the time for everything you do. This includes everything from answering the phone within the first ring or two to meeting or exceeding the deadline for a customer’s project. If something normally takes three weeks, do it in two. If you say you’ll get back to a customer within a week, do it within days. To focus on speed, all employees must organize, prioritize, manage their time, and look for efficiencies.

5) Train your employees. Employees at every level of your business must be trained on customer service every few months. Ninety-nine percent of customer interaction takes place with your front-line employees, yet they are the least trained, least empowered, and least valued. When you spend the time and money to train your employees and do it continuously you’ll realize a return on that investment that will drive your business to new heights.

6) Remember customers’ names. The most precious things customers have are their names. Our names are precious to us. Call your customers by name whenever you interact with them. Doing this lets the customer know that you value them and their business, that you acknowledge and respect them, and that they are important to you.

7) Practice service recovery. When you make a mistake, admit it and do whatever it takes to correct it. All employees must practice the four skills of service recovery: act quickly, take responsibility, make an empowered decision, and compensate fairly.

8) Reduce costs. Price is critical to all customers. Service leaders are frugal and always looking for ways to reduce costs. My research shows that service leaders are aggressive at eliminating waste and costs. When you reduce costs, you improve your bottom line. To realize even greater benefits, pass at least a portion of those savings on to your customers. It will give you an edge over your competitors.

9) Measure results. To keep management passionate about the process of creating a service culture and the financial investment and time required to do so, you must measure the results of your efforts. It’s critical to know where you came from and where you are now. When you can prove that what you are doing is having a positive impact, you will gain support throughout the company.

Organizational design is the administration and execution of an organization’s strategic plan. This means that the organization’s strategy determines the optimal organizational design. In addition, it also means that there aren’t really any organizational design best practices. As we discuss in our Organizational Development Certificate Program, organizational design is more about creating the best fit between the strategic choices of the organization and the organizational setting.

This is represented in the figure below. Organizational design is determined by the strategic direction of the company, a.k.a. the vision, mission, and goals of the company. These lead to strategies that the company competes on which are enabled through the organizational design.

Types of Organizational Structure

Companies may adopt one of six organizational structures based upon company size and diversity of scope of operations.

Pre-bureaucratic

Ideal for smaller companies, the pre-bureaucratic structure deliberately lacks standardized tasks and strategic division of responsibility. Instead, this is an agile framework aimed at leveraging employees in any and all roles to optimize competitiveness.

Bureaucratic

A bureaucratic framework functions well in large corporations with relatively complex operational initiatives. This structure is rigid and mechanical, with strict subordination to ensure consistency across varying business units.

Post-bureaucratic

This structure is a combination of bureaucratic and pre-bureaucratic, where individual contribution and control are coupled with authority and structure. In this structure, consensus is the driving force behind decision making and authority. Post-bureaucratic structure is better suited to smaller or medium-sized organizations (such as nonprofits or community organizations) where the importance of the decisions made outweighs the importance of efficiency.

Functional

A functional structure focuses on developing highly efficient and specific divisions which perform specialized tasks. This structure works well for large organizations pursuing economies of scale, usually through production of a large quantity of homogeneous goods at the lowest possible cost and highest possible speed. The downside of this structure is that each division is generally autonomous, with limited communication across business functions.

Divisional

A divisional structure is also a framework best leveraged by larger companies; instead of economies of scale, however, they are in pursuit of economies of scope. Economies of scope simply means a high variance in product or service. As a result, different divisions will handle different products or geographic locations/markets. For example, Disney may have a division for TV shows, a division for movies, a division for theme parks, and a division for merchandise.

Matrix

A matrix structure is used by the largest companies with the highest level of complexity. This structure combines functional and divisional concepts to create a product-specific and division-specific organization. In the Disney example, the theme park division would also contain a functional structure within it (i.e., theme park accounting, theme park sales, theme park customer service, etc.).

Strategic Organizational Design

Structure becomes more difficult to change as companies evolve; for this reason, understanding which specific structure will function best within a given company environment is an important early step for the management team. Smaller companies function best as pre-bureaucratic or post-bureaucratic; the inherent adaptability and flexibility of the pre-bureaucratic structure is particularly effective for small companies aspiring to expand. Larger companies, on the other hand, achieve higher efficiency through functional, bureaucratic, divisional, and matrix structures (depending on the scale, scope, and complexity of operations).

McDonald’s fast-food restaurants departmentalize varying elements of their operation to optimize efficiency. This structure is divisional, meaning each specific company operation is segmented (for example, operations, finance/accounting, marketing, etc.).

Principles:

Specialization principle. This principle states that boundaries should exist to encourage the development of specialist skills. The test here is if any specialist cultures, which are entities that have to be different from the rest of the organization, have sufficient protection from the influence of the dominant culture.

Co-ordination principle. This principle states that activities that are done should be coordinated in a single unit. This unit can be a business unit, business function, (horizontally coordinating) overlay unit, sub-business, core resource unit, shared service unit, project unit, or parent unit. The test here is if there needs to be coordination between departments that is hard to do. These ‘difficult links’ are links where normal networking will not provide coordination benefits. In that case, coordination should be made easier, or responsibility should be put in within a single unit. There are many different units that can be used in organizational design, as we will show below.

Knowledge and competence principle. This principle states that responsibilities should be allocated to the person or team best fit to do them. This means that tasks are retained by higher levels based on their knowledge and competitive advantage. If this is not the case, they should be positioned lower in the organization.

This means that the CEO should not be involved in every decision especially not decisions that involve specialists with much more subject-matter knowledge. The CEO is there for the big picture and to balance complex decisions that impact the organization and strategy.

Control and commitment principle. This principle is about having effective control on the one hand while maintaining engagement and commitment on the other hand. This is always a balance. The test here is to have a control process that is aligned with the unit’s responsibility, cost-efficient to implement, and motivating for the people in the unit.

This means that the CEO is not giving the ‘go’ on the purchase decision for a Rs. 3000/- keyboard this would be highly demotivating and control on such small expenditures should be put lower in the organization to be adaptive anyway.

Innovation and adaptation principle. This principle states that organizational structures should be sufficiently flexible to adapt to an ever-changing world. The test here is that the organizational design will help the development of new strategies and to adapt to future changes. Later in this article, we will give a case study of an organization that was unable to adapt to a rapidly changing environment, hurting its internal processes and bottom line.

Any company that ships worldwide or provides services to consumers or businesses in other countries is considered a global company. An international strategy is usually the first approach most businesses take with global expansion: exporting or importing goods and services while maintaining a head office or offices in their home country.

A firm that has operations in more than one country is known as a multinational corporation (MNC). The largest MNCs are major players within the international arena. Walmart’s annual worldwide sales, for example, are larger than the dollar value of the entire economies of Austria, Norway, and Saudi Arabia. Although Walmart tends to be viewed as an American retailer, the firm earns 35% of its revenues outside the United States. Walmart owns significant numbers of stores in Mexico, Central America, Brazil, Japan, the United Kingdom, Canada, Chile, Botswana, and Argentina. Walmart also participates in joint ventures in China and India. Even more modestly sized MNCs are still very powerful.

Global expansion as a business doesn’t have a one-size-fits-all approach. As companies grow and scale, they may choose to invest more in their target markets.

The three most prevalent philosophies of international business strategy are:

Industry-based which argues that conditions within a particular industry determine strategy.

Resource-based which argues that firm-specific differences determine strategy.

Institution-based which argues that the industry- and resource-based views need to be supplemented by accounting for relevant societal differences of the types mentioned above.

Need:

In marketing and strategy, the market of operation is a very crucial parameter. Thus, a company operating in India cannot employ the same strategies should it want to expand to Russia. So, for a company seeking international foothold, framing of an international strategy assumes a very crucial role. Depending upon the business strategy decided, companies either become aggressive exporters and start exporting goods or open their business units in the market they want to capture

Types:

Transnational Strategy: Transnational businesses operate with a central or head office in one country that coordinates local subsidiaries in international markets. This organizational structure means that there is one overarching brand and center of operations that determine overall decision-making and supply chain management, harnessing the power of scale. Companies McDonald’s, Nike, and Coca-Cola use this model.

Multi-Domestic Strategy: When businesses use completely different sales, marketing, and product strategies based on the specific companies they’re operating in. Rather than one global brand, there are many smaller, country-specific brands tailored to local tastes and local customers. Big-name wellness brands like Johnson and Johnson use this model. Netflix customizes the programming that is shown on its channels within dozens of countries, including New Zealand, Portugal, Pakistan, and India. Similarly, food company H. J. Heinz adapts its products to match local preferences. Because some Indians will not eat garlic and onion, for example, Heinz offers them a version of its signature ketchup that does not include these two ingredients. Outback Steakhouse uses the multi-domestic strategy in the multiple countries where it operates, adapting to local eating preferences but not lowering prices significantly.

Global Strategy: When businesses define one global brand, making little to zero changes for other markets. Tech giant Apple is a great example of this; the technology is the same (with a few minor changes in keyboards) wherever you go. Microsoft, for example, offers the same software programs around the world but adjusts the programs to match local languages. Similarly, consumer goods maker Procter & Gamble attempts to gain efficiency by creating global brands whenever possible. Global strategies also can be very effective for firms whose product or service is largely hidden from the customer’s view, such as silicon chip maker Intel. Lenovo also uses this strategy. For such firms, variance in local preferences is not very important, but pricing is.

Firms pursuing an international strategy are neither concerned about costs nor adapting to the local cultural conditions. They attempt to sell their products internationally with little to no change. When Harley Davidson sells motorcycles abroad, they do not need to lower their prices or adapt the bike to local motorcycle standards. People in other countries buy a Harley particularly because it is different from the local motorcycles. Buyers want the American look and the sound and power of a Harley, and will pay for that differentiation. Belgium chocolate exporters do not lower their price when exporting to the American market to compete with Hershey’s, nor do they adapt their product to American tastes. They use an international strategy. Starbucks and Rolex watches are other examples of firms pursuing the international strategy.

Price may be defined as the exchange of goods or services in terms of money. Without price there is no marketing, in the society. To a manufacturer, price represents quantity of money (or goods and services in a barter trade) received by the firm or seller. To a customer, it represents sacrifice and hence his perception of the value of the product. Conceptually, it is:

Price = Quantity of money received by the seller/Quantity of goods and services rendered received by the buyer

The term ‘price’ needs not be confused with the term ‘pricing’. Pricing is the art of translating into quantitative terms (rupees and paise) the value of the product or a unit of a service to customers at a point in time.

According to Prof. K.C. Kite, “Pricing is a managerial task that involves establishing pricing objectives, identifying the factors governing the price, ascertaining their relevance and significance, determining the product value in monetary terms and formulation of price policies and the strategies, implementing them and controlling them for the best results”.

Pricing refers to the value determination process for a good or service, and encompasses the determination of interest rates for loans, charges for rentals, fees for services, and prices for goods. Pricing decisions are difficult to make even when a company operates only in a domestic market, and the difficulty is still greater in international markets. Multiple currencies, trade barriers, additional cost considerations, and longer distribution channels make price determination more complex in international markets.

Globalisation of business has put increased pressure on the pricing systems of companies which enter international markets. These companies have to adapt their pricing structures as they graduate from being purely domestic players to exporters, and then to overseas manufacturers.

The earlier pricing structures used by them may no longer be appropriate in the complex international environment characterized by high competition, more global players, rapid changes in the technology, and high-speed communication between markets.

Companies operating in international markets have to identify:

1) The best approach for setting prices worldwide.

2) The variables those are important in determining prices in international markets.

3) The level of importance that needs to be given to each variable.

4) The variance in prices across markets.

5) The variance in prices across customer types.

6) The factors to be considered while determining transfer prices,

Pricing decisions cannot be made in isolation because pricing affects other marketing decision variables and determines:

1) The customer’s perception of value.

2) The level of motivation of intermediaries.

3) Promotional spending and strategy.

Pricing, an important decision in any business, be it domestic or international, directly affects revenue and thus profitability. Further, appropriate pricing aids proper growth, as development of a mass market depends to a large extent on price. For businesses dependent on acquiring business contracts through competitive bidding, such as the construction and mining industries and drilling companies, a poor pricing decision threatens survival. Too high a price may mean no business, while a lower price may lead to a unprofitable operation. In many cases, the price indicates a product’s quality. If the Mercedes car, e.g., were priced in the same range as the Oldsmobile, the Mercedes would lose some of its quality image. Finally, price affects the extent of promotional support to be allocated to a product.

Objectives of International Pricing

Penetration:

The first objective of a new entrant to an international market is to create demand for the product. For this, the firm will be tempted to adopt low-price strategy, which may divert demand from a regular channel of supply or to generate new demand. Low price strategy is justified for the new entrant in the light of his image disadvantage and the nature of his product. However, the danger of this strategy is that it may invite anti-dumping charges from foreign competitors apart from yielding low profits for the exporter.

Skimming:

Another objective of pricing policy may be to use a very high price to skim the cream of the demand. High price strategy is generally used if the export firm is selling a unique or a new product, or the exporter intends to establish a high-quality image for the product. The advantage of this strategy is that the exporter can earn higher profit margins but it can limit the product’s marketability. This may also attract more competition in the market for that product. Hence, this strategy should be used only when an exporter has gained a strong foothold in a foreign market and has built up a good image for his product and himself.

Holding Market Share:

Another objective of pricing in international marketing is to maintain their share in the market, i.e., to survive in the face of strong competition in the market. In a market where there is strong competition, weaker export firms will disappear and the stronger ones will survive the competition. Price of the product should be fixed keeping in mind the competitive situation. Hence, the export firm likes to fix a relatively low price for its product to discourage potential customers.

Enhancing the Share:

One of the objectives of pricing decision maybe capturing the export market. A company fixes comparatively lower prices for its products. Sometimes, prices are fixed at the lowest. which may result in no profit to the business, but the main aim is to enhance the market share of the product and the firm. Besides above-mentioned objectives, other objectives of pricing of international marketing may be listed as under:

• Preventing new entry
• Fighting competition
• Shortening pay back period
• Optimum capacity utilization
• Early cash recovery
• Profit maximization.

Factors Affecting International Pricing

It is far more difficult to fix price in international market as compared to domestic market.

The following are the main factors to be considered while fixing prices in international market:

1. International Marketing Objectives:

Mostly price is decided with a view to capture international market, e.g., when a company wants to enter in the market the product is sold at lower rates. When it intends to maximise use of its additional production capacity, marginal cost of production is considered. When an export target is to be achieved then in that context price is determined. Other motives like getting entry in market, to get a certain share in market, to get definite return on investment, etc., are also of special importance.

2. Cost of Product:

Price in international marketing cannot be determined without considering the cost of the product. Fixed and variable costs of production, marketing and transport expenses are included in the cost of production. Sometimes a company sells at a price lower than cost and increases its share in market. It aims to recover production cost in long run. Price depends on production cost. Hence, it is necessary to analyse the cost and to consider the fixed and variable costs while fixing the price.

But cost alone cannot fix the price. It is true that the price cannot be fixed below cost for long. Cost determines the floor price below which an exporter may not agree to sell the goods. But this principle does not always hold good. An increase in costs may justify the increase in prices, yet it may not be possible to do so because of the marketing conditions, i.e., demand and supply. On the other hand, it may also be possible that any increase in demand may lead to an increase in price without an increase in costs.

Although the costs-price relationship is important, it does not support the claim that costs determine the price. In some cases, the prevalent price may determine the costs that may be increased. The manufacturer-exporter cuts the cost according to the prices prevailing in the market.

Another factor that proves that the costs do not determine the price is that costs of each producer differ substantially due to different internal and external factors. If cost is the determining factor, the price must also vary substantially. Again, if costs are to determine the price, no firm would suffer a loss. It does not mean that costs should be completely ignored while setting price. Cost is one of the most important factors in setting price.

3. Demand:

Demand is another factor that determines the prices in the international markets. The demand in international markets is also affected by a number of factors which are different from those operating in domestic market. Customs and tastes of foreign customers may differ widely.

Elasticity of demand is another factor which affects the pricing. If the demand of the product is elastic, a reduction in price may increase the sales volume. On the other hand, higher price may be fixed if the demand is inelastic and the supply is limited.

4. Business Competition:

Competition in the foreign market is also an important factor. Competition in foreign market may be so severe that the exporter has no other option except to follow the market leader. In monopoly an exporter can fix high price of its patented product. Greater competition reduces freedom for fixing the price. Price cannot be determined without considering the strategy of competitors.

5. Exchange Rate:

Foreign exchange rate plays a vital role in the price fixing in international marketing. For example, when rupee falls against dollar an importer hesitates in filling tender. An importer has to pay more rupees per dollar. In such circumstances rupee is considered to have become weaker against dollar.

6. Product Differentiation:

This factor plays a vital role in price fixing. When a product has specialities or is totally different compared to those of its competitors, the company is more-free to decide price. Usually, prices of such products are quoted higher than that of others up to certain extent.

7. Prestige:

Prestige of the producer and of the country is reflected in the price of the product. Prestigious companies determine higher price for their products. Underdeveloped countries cannot quote high price, even if their product is better than that of the developed country. In foreign markets, as a developing country India finds it difficult to keep prices high though our many items like H.M.T. watches, woollen garments, readymade wear, leather bags and Ayurvedic medicines are of superb quality.

8. Market Characteristics:

In addition to competition the following are some other factors which also affect price:

(i) Trend of demand

(ii) Consumer income levels

(iii) Importance of the product to the consumer

(iv) Margins of profit.

9. Government Factors:

Government’s policy and laws affect pricing as under:

(i) Ceiling and Floor Prices:

Some countries fix top and bottom prices of their products. When government regulates the price, one has to keep its price between them. India had fixed minimum export prices of cotton cloth and other products. Normally, such a policy may be applied for national development, industries position, stock of goods, and protection of industries.

(ii) Regulation of Margins:

Sometimes government decides the profit margin or percentage of mark-up for producers or distributors. As a result, marketer loses most of the freedom of pricing.

(iii) Taxes:

While deciding price of an exportable product, custom duties and other taxes have to be considered. When import duties are levied, an exporter has to reduce his price. In foreign markets price has to be kept up because of such taxes.

(iv) Tax Concessions, Exemptions and Subsidies:

To promote exports many countries give tax reliefs or freedom. Products can be exported at lower prices in such cases. For example, under Duty Draw Back Scheme, if raw-materials are imported for production of export goods, the import duty or excise duty paid for this is refundable. To promote export, Govt., gives financial subsidies also. Such subsidies also affect price determination in export market.

(v) Other Incentives:

To promote export the government gives many incentives. Among these, supply of raw-materials, electricity and water supply at lower rates, aid in selling etc. are main incentives. While fixing prices of export goods these factors are kept in view.

(vi) Government Competition:

Sometimes the government enters in market to keep control on international prices. For example, the American Government sells aluminium from its stock at a fixed price to American companies. The companies are unable to increase prices in such circumstances. Hence, while fixing price Government competition should also be considered.

(vii) International Agreement:

Prices of some products are controlled by international agreements about stock, buffer stock agreement, bilateral or multilateral agreements. In view of such agreements companies have to fix prices in international market.

Cost Based

The most frequently used pricing method in exports is cost-plus method. This method is based on the full cost or total cost approach. In arriving at the export pricing under this method, the total cost of production of the article (fixed and variable) is taken into account.

Over and above the fixed and variable costs incurred in the production of exportable articles, all direct and indirect expenses incurred for the development of product such as research and development expenses and other expenses necessary for the export of the articles such as transportation cost, freight, customs duties, insurance etc., are included.

Then a reasonable profit margin is added to the costs and the value of the subsidy and assistance from the Government or other bodies of the country, if any, is deducted. The net result is the total export price for the commodities produced. Price per unit may be calculated by dividing the total price, thus arrived, by the number of units manufactured.

The various elements of cost, forming part of the total cost are:

(i) Direct Costs:

(a) Variable Costs:

Direct materials, direct labour, variable production overheads, variable administrative overheads.

(b) Other Costs Directly Related to Exports:

Selling costs: Advertising support to importers abroad, special packing, labelling, etc., commission to overseas agent, export credit insurance, bank charges, inland freight, forward charges, inland insurance, port charges, export duties, warehousing at port, documentation and incidentals, interests on funds involved, costs of after-sale service.

(ii) Fixed Costs or Common Costs:

It includes production overheads, administration overheads, publicity and advertising (general), travel abroad and after-sale service minus Govt., assistance, duty drawback and import subsidy etc., received and then freight and insurance are added to arrive at the final cost.

Advantages:

(i) Under this method the exporter realises the total cost in marketing the product in a foreign market.

(ii) Marginal targets are thought of.

(iii) No chances of loss.

(iv) This is logical and universally accepted method.

(v) It is easier to understand and calculate.

Disadvantages:

(i) Cost is considered in advance. But there is difference between estimated and real cost. So, this method does not give exact result.

(ii) When a company’s cost is higher than its competitors, this method is of no help.

(iii) In this method only cost and expected profit are considered. Hence, chances of increasing price are often lost.

(iv) Change in demand and supply is not taken care of.

(v) It does not help in competition.

(vi) There is little scope for change according to time and circumstances and hence, this method of pricing is not useful.

Demand Based

Competition Based

Both the methods are based on cost considerations, while under market- oriented pricing, price is changed in accordance with market changes. The costs are, no doubt, important but the competitive prices should also be considered before fixing the export price. Competitive prices mean the prices that are charged by the competitors for the same product or for the substitute of the product in the target market. Once this price level is established, the base price or what the buyer can afford, should be determined.

The base price can be determined by following the three basic steps:

(i) First, relevant demand schedules (quantities to be bought) at various prices should be estimated over the planning period;

(ii) Then, relevant costs (total and incremental) of production and marketing should be estimated to achieve the target sales volume as per demand schedules prepared; and

(iii) Lastly, the price that offers the highest profit contribution, i.e., sales revenues minus ‘all fixed and variable costs.

The final determination of base price should be made after considering all other elements of marketing mix. Within these elements, the nature and length of channel of distribution is the most important factor affecting the final cost of the product?

The above three steps, though appear to be very simple, is actually not so because there are various other factors that should be considered. The most appropriate method to estimate the demand of the product shall be the judgemental analysis of company and trade executives. One other way may be the extrapolation of demand estimates for target markets from actual sales in identical markets in terms of basic factors.

Advantages:

(i) This method is more flexible, hence benefits of market opportunity can be obtained.

(ii) Business unit can face competition as price is fixed as per market position.

(iii) When product life is short, this method is most suitable.

(iv) Capital is regained quickly.

(v) We make sales quickly and cash flow can be maintained.

(vi) Risk of product becoming out of date decreases.

Disadvantages:

(i) It is not easy to estimate market changes.

(ii) It is possible to overlook relation between price and demand.

(iii) If demand is less in a market compared to others, it may mislead.

Value Pricing

Value-based price (also value optimized pricing and charging what the market will bear) is a pricing strategy which sets prices primarily, but not exclusively, according to the perceived or estimated value of a product or service to the customer rather than according to the cost of the product or historical prices. Where it is successfully used, it will improve profitability through generating higher prices without impacting greatly on sales volumes.

The approach is most successful when products are sold based on emotions (fashion), in niche markets, in shortages (e.g. drinks at open air festival on a hot summer day) or for complementary products (e.g. printer cartridges, headsets for cell phones). Goods which are very intensely traded (e.g. oil and other commodities) are often sold using cost-plus pricing. Goods which are sold to highly sophisticated customers in large markets (e.g. automotive industry) have also in the past been sold using cost-plus pricing, but thanks to modern pricing software and pricing systems and the ability to capture and analyze market data, more and more markets are migrating towards market- or value-based pricing.

Value-based pricing in its literal sense implies basing pricing on the product benefits perceived by the customer instead of on the exact cost of developing the product. For example, a painting may be priced as much more than the price of canvas and paints: the price in fact depends a lot on who the painter is. Painting prices also reflect factors such as age, cultural significance, and, most importantly, how much benefit the buyer is deriving. Owning an original Dalí or Picasso painting elevates the self-esteem of the buyer and hence elevates the perceived benefits of ownership.

Target Return Pricing

The Target-Return Pricing is a method wherein the firm determines the price on the basis of a target rate of return on the investment i.e. what the firm expects from the investments made in the venture.

Target-Return Pricing = Unit cost + (Desired return x invested capital) /Unit sales

The target-return pricing is easy to calculate and understand. Also, it gives direction towards which the efforts of all the team members should be directed, to accomplish the set ROI.

But however, the major limitation of this method is the accuracy with which the amount of sales is estimated. It is not necessary that the quantity for which the set ROI is achievable will be same for all the other quantities.

Going Rate Pricing

The Going-Rate Pricing is a method adopted by the firms wherein the product is priced as per the rates prevailing in the market especially on par with the competitors.

Basically, the company sets a price of its products and services in line with the competitor’s prices, and may sometimes charge more or less depending on the value, product offers.

This type of pricing is mostly followed in Oligopolistic industries where they deal in homogenous goods, and in which less variation is seen from one producer to another. Such products are steel, aluminium, paper, fertilizer, etc., the firms dealing with these usually charge the same price from the customers.

With a going-rate pricing method, companies feel secure as they are sure to get the customers because of the same rates prevailing in the industry. But however, it is difficult to determine the changing trends of the competitor and often it is not possible to match the cost of a product with the price that others are following.

Advantages

• Competitor’s price is taken as base.
• Uniform price in market.
• Misguiding customers is protected.

Disadvantages

• Only competitor price is considered.
• Inaccurate decisions.
• Production costs etc. are ignored.

Marginal Cost Pricing:

Another cost oriented method of pricing in international market is to determine the price on the basis of variable cost or direct cost. In this method fixed cost element in the total cost of production is totally ignored and the firm is concerned only with the marginal or incremental cost of producing the goods which are sold in foreign markets.

We know that the fixed cost remains fixed up to a certain level of output irrespective of the volume of output. Variable costs, on the other hand, vary in proportion to the volume of production. Thus, it is the variable or direct or marginal costs that set the price after a certain level of output is achieved, that is, output at Break-Even Point (BEP).

This method is based on the assumption that the export sales are bonus sales and any return over the variable costs contributes to the net profit. Under this system it is assumed that the firm has been producing the goods for home consumption and the fixed costs have already been met or in other words, Break-Even Point has been achieved.

Thus, if the manufacturers are able to realise the direct costs, including those involved in export operations specifically, they would not affect the profitability of their firms. The profitability of firms should be assessed with reference to marginal cost which should normally constitute the basis for export pricing. Other elements in calculating price will remain the same.

Advantages:

(i) Export sales are additional sales hence these should not be burdened with overhead costs which are ordinarily met from the domestic trade.

(ii) This method is advocated for firms from developing countries who are not well-known in foreign markets as compared to their competitors from developed countries, and therefore, lower prices based on variable costs may help them enter a market. Price may be used as a technique for securing market acceptance for products newly introduced into the market.

(iii) Since the buyers of products from developing countries usually are in countries with low national income, it is advisable for the firm to serve a large segment of the market at low prices.

(iv) When fixed cost can be gained from domestic market, total profit can be raised by exporting at a price higher than marginal cost price.

(v) An order which may be refused on the basis of total cost can be accepted on the basis of marginal cost and profit can be increased.

Disadvantages:

(i) Generally, this method is applied only when a company has idle production capacity in addition to optional cost.

(ii) Developing countries might be charged for dumping their products in foreign markets because they would be selling their products below net prices and thus may attract anti-dumping provisions which will take away their competitive advantage.

(iii) The use of this method may give rise to cut-throat competition among exporting firms from developing countries resulting in loss in valuable foreign exchange to the exporting countries.

(iv) Marginal cost pricing is not advisable in the following cases:

(a) If the importers are regularly purchasing the product at a low price, it will be difficult for exporters to increase the price of the commodities later on. It may result in loss of market.

(b) This policy is not useful or is of limited use to industries which are mainly dependent upon export markets and where overheads or fixed costs are insignificant.

Feasibility:

The system of marginal cost pricing is feasible in the following circumstances:

(i) There must be a large domestic market for the product so that the overheads may be charged from products manufactured for domestic market.

(ii) Mass production techniques must have been adopted so that the gap between the full and marginal costs may be reduced.

(iii) The home market has a capacity to bear the higher prices.

(iv) Additional production for exports is possible without increasing overhead costs and within permissible production capacity.

Marginal Cost Sets the Lower Limit:

It is generally advocated that marginal cost should be the basis for export pricing. This method based on marginal cost only sets the lower limit up to which a firm can sell its product without affecting its overall profitability. It does not follow that one should invariably charge the variable cost.

The situation in different markets may be different and in many a case, contribution towards fixed cost might be possible and all efforts should be made to take advantage of this possibility. Even in cases where only marginal cost is possible to realise, the long-term objective of the firm should be to recover direct costs plus some contribution towards overhead costs as well.

Pricing is one of the most relevant elements of the marketing mix. Price is defined as the amount of money required for a product or service. Generally, this should reflect the cost of producing the product, the cost of providing any necessary or ancillary services, a return for the firm, as well as the quality of the product.

Skimming Pricing

Under high pricing policy, higher prices are charged during the initial stage of the introduction of a new product. The manufacturer fixes, higher price of his product in order to recover his initial investment quickly. This type of pricing is resorted to by an exporter who has gained a strong foothold (a near monopoly position), in a foreign market and has acquired a highly competitive position with an image of a dependable supplier of quality product.

With the help of a well thought out promotion program, emphasizing the value derivable from the product, higher price may be charged to maximize gain. Vanity items or items that involve high research development expenditure for manufacturing and marketing or items that are unique to a particular company or country which cannot be easily copied by competitors are amenable to skimming pricing.

Producers of smart phones used a skimming strategy. Once other producers penetrated into the market and the smart phones were manufactured at a lower unit price, other marketing approaches and pricing approaches were executed. New products were launched and the market for smart phones earned a reputation for innovation.

Penetration Pricing

Under this pricing policy, prices are fixed below the competitive level to obtain a larger share of the market and to develop popularity of the brand. Unlike skimming price policy, it facilitates higher volume of sales even during the initial stages of a product’s life cycles. This policy helps in developing the brand preference and is useful in marketing the products which are expected to have a steady long-term market.

Penetration pricing is an aggressive pricing strategy which results in lower profits or even losses during the initial stages. But once the product is established in the market, profit level goes up because of economies of large scale production.

After getting large number of subscribers, rates gradually go up. For example, Tata Sky or any cable or satellite company, when there is a premium movie or sporting event rates are at their highest. Thus, they shift from penetration strategy to more of a skimming or premium pricing strategy.

Predatory Pricing

Predatory pricing is a pricing strategy, using the method of undercutting on a larger scale, where a dominant firm in an industry will deliberately reduce its prices of a product or service to loss-making levels in the short-term. The aim is that existing or potential competitors within the industry will be forced to leave the market, as they will be unable to effectively compete with the dominant firm without making a loss. Once competition has been eliminated, the dominant firm now with having a majority share of the market can then raise their prices to monopoly levels in the long-term to recoup their losses.

The difference between predatory pricing and competitive pricing is during the recouping phase of lost profits by the dominant firm charging higher prices. With there being fewer firms in the market causing consumers to have fewer choices between these products or services these higher prices result in consumer harm. Predatory pricing usually will cause consumer harm and is considered anti-competitive in many jurisdictions making the practice illegal under some competition laws.

Here, the rates of marketing and advertising a product are kept as low as possible. Supermarkets often have economy brands for soups, spaghetti, biscuits, etc.

Budget airlines are popular for keeping their overheads as low as possible and then providing the customer a comparative lower rate to fill an aircraft. The first few seats are sold at a very low rate almost an advertisement rate price and the middle majority are economy seats, with the highest rate being sold for the last few seats on a flight i.e., in the premium pricing strategy. During times of recession, economy pricing records more purchase.

Legal features

• The principal part of predatory pricing is the operator in the seller’s market, and the operator has certain economic or technical strength. This feature distinguishes it from price discrimination, which includes not only competition between sellers but also competition among buyers.
• The geographical market of predatory pricing is the country’s domestic market. This feature distinguishes it from “dumping“. “Dumping” refers to the act of selling commodities in overseas markets at a lower price than the domestic market. It can be seen that these two have similarities in terms of “low-cost sales” and “exhaustion of competitors”, but their differences are obvious.

(1) The scopes of application of the two are different. “Predatory pricing” applies to domestic trade, and “dumping” applies to international trade. The standards for the identification of the two are different. “Predatory pricing” is based on cost, while “dumping” is based on the price applicable to the normal trading of domestic similar products.

(3) The laws applicable to both are different. “Predatory pricing” mainly applies to domestic laws, while “dumping” mainly applies to international treaties or the laws of other countries.

(4) The consequences of the two are different. Legal sanctions on “predatory pricing” are compensating damages or administrative penalties, while “dumping” is levying anti-dumping duties.

The objective performance of predatory pricing is a company temporarily sells goods or services below cost. Its essence is that it temporarily loses money, but squeezes competitors out of a certain market to form an exclusive situation. Then the predatory pricing company can sell goods and services at monopoly prices to make up for the losses from its low price sales.

A dominant firm’s subjective intention may be to eliminate competition to gain a monopoly advantage. Under EU law, if a dominant firm prices above AVC but below average total costs (ATC), proving intention can be useful evidence for a finding of predatory pricing. However, it can be difficult to distinguish an intention to eliminate competitors from a legitimate intention to win competition. Therefore, the European Commission do not have to establish an undertaking’s subjective intention to show Article 102 applies, especially as abuse is an “objective” rather than a subjective concept.