Session 6

The Global Marketing Mix – Product and Pricing

Review of Pre-Class Resources
• Any questions on the content from the previous session.
• Discuss pre-class video as introduction to today’s topic.
Basic Product Concepts

• A product is a good, service, or idea

• Tangible Attributes
• Intangible Attributes
• Product types
• Consumer goods
• Industrial goods
Product Warranties

• An Express Warranty is a written guarantee that assures

the buyer is getting what he or she paid for or provides a
remedy in case of a product failure
• Warranties can be used as a competitive tool
Packaging
• Consumer Packaged Goods are a variety of products whose
packaging protects or contains the product from production to the
end user
• Eco-packaging addresses environmental issues like recycling,
biodegradability, & sustainable forestry
• Must engage the senses, make an emotional connection, & enhance
the brand experience
Labeling
• Provides consumers with various types of information
• Regulations differ by country regarding various products
– Health warnings on tobacco products
– American Automobile Labeling Act clarifies the country of origin, and final
assembly point
– European Union requires labels on all food products that include ingredients
from genetically modified crops
Aesthetics
• Global marketers must understand the importance of visual
aesthetics
• Aesthetic styles (degree of complexity found on a label) differ
around the world
Product Types
• Buyer orientation
– Amount of effort expended
– Level of risk
– Buyer involvement
• Buyer orientation framework
– Convenience goods
– Preference goods
– Shopping goods
– Specialty goods
Basic Brand Concepts
• Bundle of images and experiences in the customer’s mind
• A promise made by a particular company about a particular
product
• A quality certification
• Differentiation between competing products
• The sum of impressions about a brand is the Brand Image
Brand Equity
• The total value that accrues to a product as a result of
investments in the marketing of the brand

• An asset that represents the value created by the

relationship between the brand and customer over time
Brand Equity Benefits
• Greater loyalty
• Less vulnerability to marketing actions
• Less vulnerability to marketing crises
• Larger margins
• More inelastic consumer response to price increases
• More elastic consumer response to price decreases
• Increased marketing communication effectiveness
Local Products and Brands

• Brands that have achieved success in a single national

market
• Represent the lifeblood of domestic companies
• Entrenched local products/brands can be a significant
competitive hurdle to global companies
International Products and Brands

• Products and brands offered in several markets in a

particular region
–‘Euro-brands’
–Honda 5-door hatchback auto is known as Fit in Japan
and Jazz in Europe
Global Products and Brands
• Global brands are not the same as
global products
– iPod = brand
– mp3 player= product
• Global products meet the wants and
needs of a global market and are
offered in all world regions
• Global brands have the same name
and similar image and positioning
throughout the world
• BMW : “Ultimate Driving Machine In any language Gillette’s trademarked
• GE: Imagination at Work brand promise is easy to understand.
• Visa: Life takes Visa
• Harley-Davidson: An American Legend
Global Products and Brands
“A multinational has operations in different countries. A global
company views the world as a single country. We know Argentina
and France are different, but we treat them the same. We sell them
the same products, we use the same production methods, we have
the same corporate policies. We even use the same advertising—in a
different language, of course.”

- Alfred Zeien Former Gillette CEO

Global Brand Characteristics
• Quality signal—allows a company to charge premium price
in a highly competitive market
• Global myth—marketers can use global consumer culture
positioning to link the brand identity to any part of the
world
• Social responsibility—shows how a company addresses
social problems
Branding Strategies
• Combination or tiered branding allows marketers to leverage a
company’s reputation while developing a distinctive identity for a
line of products
– Sony Walkman
• Co-branding features two or more company or product brands
– NutraSweet and Coca-Cola
– Intel Inside
Brand Extension
• Brand acts as an umbrella for new products
–Example: The Virgin Group
• Virgin Entertainment: Virgin Mega-stores and MGM Cinemas
• Virgin Trading: Virgin Cola and Virgin Vodka
• Virgin Radio
• Virgin Rail (UK only)
• Virgin Media Group: Virgin Publishing, Virgin Television, Virgin Net (UK only)
• Virgin Hotels
• Virgin Travel Group: Virgin America Airways, Virgin Holidays, Virgin Galactic
Product/Brand Matrix
World’s Most Valuable Brands, 2014
Global Brand Development
• Questions to ask when management seeks to build a global
brand:
–Does this move fit the company and/or its markets?
–Will anticipated scale economies materialise?
–How difficult will it be to develop a global brand team?
–Can a single brand be imposed on all markets successfully?
Global Brand Development
• Global Brand Leadership
–Using organisational structures, processes, and cultures to
allocate brand-building resources globally, to create global
synergies, and to develop a global brand strategy that
coordinates and leverages country brand strategies
Global Brand Development
1. Create a compelling value proposition, beginning with the
home-country market
2. Think about all elements of brand identity and select
names, marks, and symbols that have the potential for
globalisation
3. Develop a company-wide communication system to share
& leverage knowledge and information about marketing
programs & customers in different markets
Global Brand Development
4. Develop a consistent planning process across markets &
products. Make a process template available to managers in
all markets
5. Assign specific responsibility for managing branding issues
to ensure local brand managers accept global best practices.
6. Execute brand-building strategies that leverage global
strengths & respond to relevant local differences.
A Needs-Based Approach to Product Planning
• Maslow’s Needs Hierarchy helps marketers understand how & why
local products go beyond the home-country
• Needs and wants aren’t the same thing
• Global giants like Coca-Cola, McDonald’s and Sony understand and
build local products or products that fulfill social functions
Maslow’s Hierarchy of Needs
Asian Hierarchy of Needs
Country of Origin as Brand Element
• Perceptions about and attitudes toward particular countries
often extend to products and brands known to originate in
those countries
– Japan
– Germany
– France
– Italy
Extend, Adapt, Create: Strategic Alternatives
in Global Marketing
• Extension – offering product virtually unchanged in markets
outside of home country
• Adaptation – changing elements of design, function, and
packaging according to needs of different country markets
• Product Invention– developing new products for the world
market
Global Product Planning:
Strategic Alternatives
 Strategy 1: Dual Extension
• Product-Communication Extension
• May be very profitable, simple
• Almost no adaptation
• Same advertising and promotional appeals
• Used with B2B or industrial products
• Apple iPhone
• Loctite adhesives
• Microsoft Windows 7
 Strategy 2: Product Extension-Communications
Adaptation
• Products may serve the same or different needs in different markets
• No product changes reduce expense
• Costs in market research advertising, sales promotion, point-of-sale
material
• Ex. Miller Genuine Draft is an international lifestyle brand (GCCP) in Central
Europe rather than an American brand (FCCP)
• Ben& Jerry’s changed packaging color in the U.K
 Strategy 3: Product Adaptation-Communications
Extension
• Adapt the product to local use but the message stays the same
• Cadillac BTS in Sweden is 6” shorter that the CTS; available in diesel
• Oreos in China failed until they were reformulated to be less sweet
and expensive
Strategy 4: Product- Communications Adaptation
• Dual Adaptation
• Both may need to change for legal, cultural or other environmental reasons
• Regional managers may simply act independently
• Nike global shoes and “Just Do It” approach didn’t work in China
• Less expensive shoes created in country and ads featuring Chinese
athletes in line with cultural principles of harmony and respect for
authority
Strategy 5: Innovation
• Important for reaching mass markets in less industrialised
nations and certain segments in industrialised countries
• Hand-cranked radios for areas with no electricity
• Thermax, an Indian producer of small industrial boilers,
created new products for industrialised countries
How to Choose a Strategy?
• Managers face two types of errors:
• NIH “Not Invented Here” and Ethnocentrism
• The product itself, defined in terms of the function or need
it serves
• The market, defined in terms of the conditions under which
the product is used, preferences of potential customers,
and ability to buy the product
• Adaptation and manufacturing costs the company will incur
Identifying New Product Ideas

• What is a new product?

–New to those who use it or buy it
–New to the organisation
–New to a market
The International New Product Department
• How big is the market for this product at various prices?
• What are the likely competitive moves in response to our
activity?
• Can we market the product through existing structure?
• Can we source the product at a cost that will yield an adequate
profit?
• Does product fit our strategic development plan?
Testing New Products
• When do you test a new product?
–Whenever a product interacts with human, mechanical, or
chemical elements because there is the potential for a surprising
and unexpected incompatibility

• Test could simply be observing the product being used

within the market
 Basic Pricing Concepts
• Law of One Price
– All customers in the market get the best product for the best price
• Global markets
– Diamonds
– Crude oil
– Commercial aircraft
– Integrated circuits
• National markets
• Costs
• Competition
• Regulation
Basic Pricing Concepts
• The Global Manager must develop systems and policies that
address
– Price Floor: minimum price
– Price Ceiling: maximum price
– Optimum Prices: function of demand
• Must be consistent with global opportunities and constraints
• Be aware of price transparency created by Euro zone, Internet
 Global Pricing Objectives
and Strategies
• Managers must determine the objectives for the pricing
objectives
– Unit Sales
– Market Share
– Return on investment
• They must then develop strategies to achieve those objectives
– Penetration Pricing
– Market Skimming
 Market Skimming and
Financial Objectives
• Market Skimming
–Charging a premium price
–May occur at the introduction stage of product life cycle
–Luxury goods marketers use price to differentiate products
• LVMH, Mercedes-Benz
 Penetration Pricing and Non-Financial
Objectives
• Penetration Pricing
–Charging a low price in order to penetrate market quickly
–Appropriate to saturate market prior to imitation by competitors
–Packaged food product makers, with products that do not merit
patents, may use this strategy to get market saturation before
competitors copy the product
 Companion Products or
“Razors and Blades” Pricing
• Products whose sale is dependent upon the sale of primary product
– Video games are dependent upon the sale of the game console
• “If you make money on the blades, you can give away the razors.”
• Cellular service providers subsidise the phone and make money on
calling plans
Target Costing
• Use by Japanese companies to control costs, save on production
expense, & create competitively priced global products
• Also called Design to Cost
 The Target-Costing Process
• Determine the segment(s) to be targeted, as well as the prices that
customers in the segment will be willing to pay.

• Compute overall target costs with the aim of ensuring the

company’s future profitability.

• Allocate the target costs to the product’s various functions.

Calculate the gap between the target cost and the estimated actual
production cost.

• Obey the cardinal rule: If the design team can’t meet the targets,
the product should not be launched.
 Export Price Escalation

• Export price escalation is the increase in the final

selling price of goods traded across borders.
Export Price Escalation
 Pricing Factors for Goods That Cross Borders
1. Does the price reflect the product’s quality?
2. Is the price competitive given local market conditions?
3. Should the firm pursue market penetration, market skimming, or some
other pricing objective?
4. What type of discount (trade, cash, quantity) and allowance
(advertising, trade-off) should the firm offer its international
customers?
5. Should prices differ with market segment?
6. What pricing options are available if the firm’s costs increase or
decrease? Is demand in the international market elastic or inelastic?
7. Are the firm’s prices likely to be viewed by the host-country
government as reasonable or exploitative?
8. Do the foreign country’s dumping laws pose a problem?
 Cost-Based Pricing
• Cost-based pricing is based on an analysis of internal and
external cost
• Firms using western cost accounting principles use the Full
absorption cost method
• Per-unit product costs are the sum of all past or current direct and
indirect manufacturing and overhead costs
• Must include additional costs & expense when goods cross national
boarders
 Cost-Plus Pricing
• Rigid cost-plus pricing means that companies set
prices without regard to the eight pricing
considerations
• Flexible cost-plus pricing ensures that prices are
competitive in the contest of the particular market
environment
 Crossing International Borders
• Obtain export license if required
• Obtain currency permit
• Pack goods for export
• Transport goods to place of departure
• Prepare a land bill of lading
• Complete necessary customs export papers
• Prepare customs or consular invoices
• Arrange for ocean freight and preparation
• Obtain marine insurance and certificate of the policy
 Terms of the Sale
• Incoterms
–Ex-works – seller places goods at the disposal of the buyer at the
time specified in the contract; buyer takes delivery at the
premises of the seller and bears all risks and expenses from that
point on.
–Delivery duty paid – seller agrees to deliver the goods to the
buyer at the place he or she names in the country of import with
all costs, including duties, paid
 Incoterms

• FCA (free carrier) sale occurs when goods are delivered to the carrier
• FAS (free alongside ship) named port of destination – seller places goods
alongside the vessel or other mode of transport and pays all charges up
to that point
• FOB (free on board) – seller’s responsibility does not end until goods
have actually been placed aboard ship
• CIF (cost, insurance, freight) named port of destination – risk of loss or
damage of goods is transferred to buyer once goods have passed the
ship’s rail
• CFR (cost and freight) – seller is not responsible at any point outside of
factory
 Inflationary Environment
• Defined as a persistent upward change in price levels
• Can be caused by an increase in the money supply
• Can be caused by currency devaluation
• Essential requirement for pricing is the maintenance of
operating margins
 Low Inflation Environment
• Should make it possible to raise prices but consider the global
competitive environment
• U.S. inflation rate in the 1990s was low and strong demand had
factories at capacity
• However, mid-1990s Europe had high unemployment, Asia was in
recession
• By the end of the decade, globalisation, the Internet, low-cost
products from China, and cost-conscious consumers became other
constraining factors
Government Controls, Subsidies, and Regulations
• The types of policies and • Foreign governments may:
regulations that affect –require funds to be
pricing decisions are: noninterest-bearing
–Dumping legislation accounts for a long time
–Resale price –restrict profits taken out of
maintenance legislation the country and limit funds
–Price ceilings paid for imported material
–General reviews of price –Restrict price competition
levels
 Competitive Behaviour

• If competitors do not adjust their prices in response to rising

costs it is difficult to adjust your pricing to maintain operating
margins
• If competitors are manufacturing or sourcing in a lower-cost
country, it may be necessary to cut prices to stay competitive
 Using Sourcing as a Strategic Pricing Tool
• Marketers of domestically manufactured finished products may
move to offshore sourcing of certain components to keep costs
down and prices competitive
• China is “the world’s workshop”
• Rationalise the distribution system—Toys ‘R’ Us bypasses layers of
intermediaries in Japan to operate U.S. style warehouse stores
 Global Pricing:
Three Policy Alternatives
• Extension or Ethnocentric
• Adaptation or Polycentric
• Geocentric
 Extension Pricing
• Ethnocentric
• Per-unit price of an item is the same no matter where in
the world the buyer is located
• Importer must absorb freight and import duties
• Fails to respond to each national market
 Extension Pricing
"In the past, Mercedes vehicles would be priced for
the European market, and that price was
translated into U.S. dollars. Surprise, surprise:
You're 20 percent more expensive than the Lexus
LS 400, and you don't sell too many cars.”

-Joe Eberhardt, Chrysler Group Executive VP for

Global Sales, Marketing, and Service
 Adaptation or Polycentric Pricing
• Permits affiliate managers or independent distributors to
establish price as they feel is most desirable in their
circumstances
• Sensitive to market conditions but creates potential for grey
marketing
 Geocentric Pricing
• Intermediate course of action
• Recognises that several factors are relevant to pricing decision
– Local costs
– Income levels
– Competition
– Local marketing strategy
 Grey Market Goods
• Trademarked products are exported from one country
to another where they are sold by unauthorised
persons or organisations
• Occurs when product is in short supply, when
producers use skimming strategies in some markets,
and when goods are subject to substantial mark-ups
 Grey Market Issues
• Dilution of exclusivity
• Free riding
• Damage to channel relationships
• Undermining segmented pricing schemes
• Reputation and legal liability
 Dumping Final Exam

• Sale of an imported product at a price lower than that normally

charged in a domestic market or country of origin
• Occurs when imports sold in the U.S. market are priced at either
levels that represent less than the cost of production plus an 8%
profit margin or at levels below those prevailing in the producing
countries
• U.S. law, the Byrd Amendment, provides for payment to companies
harmed by dumping
• To prove, both price discrimination and injury must be shown
 Price Fixing
• Representatives of two or more companies secretly set similar
prices for their products
–Illegal act because it is anticompetitive
• Horizontal price fixing occurs when competitors within an industry
that make and market the same product conspire to keep prices
high
• Vertical price fixing occurs when a manufacturer conspires with
wholesalers/retailers to ensure certain retail prices are maintained
 Transfer Pricing
• Pricing of goods, services, and intangible property bought and
sold by operating units or divisions of a company doing
business with an affiliate in another jurisdiction
• Intra-corporate exchanges
– Cost-based transfer pricing
– Market-based transfer pricing
– Negotiated transfer pricing
 Countertrade
• Countertrade occurs when payment is made in some form other
than money
• Options
– Barter
– Counterpurchase or parallel trading
– Offset
– Compensation trading or buyback
– Switch trading