IM grp1.pptx

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Pricing Strategies & IndustrialMarketing in International

Environment


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Pricing Strategy

Pricing is the key to developing and sustaining acompetitive advantage in the market.

The launch of a new product has to be backed by a strongpricing strategy. In industrial markets gaining a marketfoothold and maintaining a competitive edge is vital.

The Pricing strategies:

Market Skimming Strategy

Penetration Pricing


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Market Skimming Strategy

Skimming pricing is the strategy of establishing a high initial price for

with a view to skimming the cream off the market at the upper end

demand curve.

Large profit in Short life span, thus quick recovery of capital.

Patent protection is important.

Buyers ready to pay premium.

Potential competitors are distant or weak in time.

Uncertainty about the price, thus it can be slashed if required.

Surplus Earnings can be used to expand into large volume markets, thuproduction costs per unit.

Disadvantage is that high profit margins attract high competition.


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At the top of the demandcurve, price elasticity is low.

absence of any close

substitute, cross-elasticity isalso low.

High price also helpssegment the market. Onlynon-price-consciouscustomers will buy a new

product during its initialstage.

By gaining profits,economies of scale can laterbe achieved and the massmarket can be tapped by

lowering the price.


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How was it used

When Sony introduced the world's first high definition television to theJapanese market in 1990, the high-tech sets cost $43,000. (Profit margin$18,000)

Sony rapidly reduced the price over the next several years to attract newbuyers.

By 1993, a 28-inch HDTV cost a Japanese buyer just over $6,000. In 2001, aJapanese consumer could buy a 40-inch HDTV for about $2000 (Profit margin

$4,350 & $870) In this way, Sony skimmed the maximum amount of revenue from the various

segments of the market.


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Saka Engineering Systems - Mixed flow dryers

In the milk powder industry

there was no availabletechnology of mixed flowdryers which could reducethe milk to a powder devoidof moisture.

This was priced at a

premium price and sold toMilk Maid manufacturingfacilities.

This price was lowered whenLipton ice tea entered themarket and then was sold to

them for the sametechni ue.


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Penetration Pricing Strategy

Based on a low price strategy.

Aim to gain market share quickly byunderpricing.


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1. Utilities Reliance (pioneer plan) & TataSky HD (first 3 months free)

Phone and cable or satellite services

Offer a discounted rate for a period of time, such as your first 3 mservice, to get you to switch to their service. (Tata Sky HD)

After your discount period has ended, the price increases significathe company ensures you have become used to its service.


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2. Discount Stores

Discount stores such as Big Bazaar use penetration pricingin two ways.

1. They offer new products through their stores at prices much lowerthan other stores, thus ensuring consumer buys more products. Theyare willing to lose money on the new product as a way to get morecustomers through the door.

2. Also, use of penetration pricing in new geographic markets byunderselling their more well-established competitors. Once theyhave a loyal customer base, they can begin to gradually increaseprices.


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3. Wholesale Indian Tool Manufacturers(Birla Group)

Offered extremely low wholesale prices to hardwarestores to carry its products for a certain length of timeto gain market share.

The hardware stores were allowed to sell the tools at aconsiderable profit during that time and use that time

to determine whether the tools are a good value fortheir customers.

After the discount period had ended, ITM begannegotiating a higher wholesale price with its now-loyalretailers since it had a dominant market share.


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Product Life Cycle

Competitive situation and market situation vary greatly.

Product needs continuous innovation and modification.

Price, similarly needs constant monitoring and adjustmentas the market demands.


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Three Stages

Growth

Maturity

Decline


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Growth

Customers develop a necessity for the product and the brand.

Competitors introduce substitutes.

Price arises as the critical factor in purchase.

In expanding markets, however, non-price factors act as USPs.

Industrial buyers opt for multiple suppliers ;

Leading to cut down of the innovators volume.

In general, price falls from introductory level.


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Maturity Competition level : At its peak

Product differentiation : Dying out

Sales begin to stabilize ; Sales growth rate decreases.

Cutting into the market share of competitors, to increase volume ;

Leading to price war.

Key to survival : Differentiation ;

Quality ;

Serviceability ;

Price.


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Decline Due to visible stagnation in the market ;

Competitors start opting out.

Profitable for the remaining suppliers.

Both sellers and buyers realize the relation betweenproduction volumes and incurred costs.

Image of the company plays its role.

Well accepted firm can increase price

to an acceptable level and;

maintain profits.

As long as the product is alive and needed in the market.


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Discount pricing

Involves deduction from the published price list

Encourage customers to buy in large volumes

Encourage rapid payment by customers

Account for cost and benefits of dealing with different range of customers


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Trade discount

Account for benefits derived from dealing with various groups of customers ormiddlemen

Discounts afforded should cover the operating costs

Must be non discriminatory and cost justified (Robinson-Patman act)

Eg. Discounting in OEMs


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Quantity discounts

An incentive offered to a buyer that results in a decreased cost per unit ofgoods when purchased in greater numbers

Encourage volume purchasing and maintain brand loyalty


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Cumulative discounts:

Reducing market expense

Reduce competitive pressure

Noncumulative discounts:

Encourage large individual orders

Reduce costs of storage and order processing

Examples: Buy five for the price of four and buy one get one free


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Cash discounts

Deduction in payable amount of debtors

Encourage rapid payment

Allow for a better cash flow

Problem may arise when large buyers pay their bills beyond the due date andstill demand the discount rates


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Geographical pricing

Modifying a basic list price based on the geographical location of the buyer

Important to remain competitive in market

Handling shipping costs on the basis of weight to value ratio


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Comparative Advantage: Nations should produce and sell those products

they specialize in and a most efficient in producing.

A firm may not actually engage in International marketing but maybechallenged by at home by a foreign competitor, making it essential thatmarketing decisions be made with on the basis of international rationale

Basis of International Marketing


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Impetus for going International

Profit Enhancement

Opportunity to utilise unused plant capacity Offset seasonal fluctuations

Make wider applications of RnD findings

Recover Manufacturing Investment

Offset declining markets (home market is saturated)

Keep pace with competitors overseas

Marketing Environment


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Marketing Environment

Controllables

PRICE PRODUCT

PRICING CHANNELS

DOMESTICUNCONTROLLABLES

POLITICAL

ECONOMIC

LEGAL

FOGEIGNUNCONTROLLABLES

ENVIRONMENT ASPECT IMPLICATION/CONDITIONS STRATEGY TOVARY OFF


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VARY OFF

ECONOMIC 1. EXCHANGE RATE When foreign currency becomesmore expensive

1. Expand to o

2. Increase Mk

3. price to P

When own currency becomesmore expensive

1. Import less

2. Price to

3. Relocate pr

2. Trade Balance Long term trade deficit withdecline in exchange rate

Government w1. Devalue Cu2. Direct spe

rather tha

POLITICAL/LEGALDetermines:Which market to enter;How to enter; How itemploys mktingstrategies

1.Take control ofassets

1. Expropriat

2. Confiscatio

3. Normalizat

4. Socializatio

5. Domesticat

ENVIRONMENT ASPECT IMPLICATION/CONDITIONS STRATEGY TO BEVARY OFF


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VARY OFF

POLITICAL/LEGAL 2. Import Restrictions Restrict inflow of foreigngoods

3.Market and Monetarycontrol

Protect domestic industry 1. Restrict sale o

2. Levy tax on foproduction facilit

3. Establish priceforeign owned pl

4.Make partnershmandatory

CULTURALImportant since ininternationalmarketing, emphasis ismore on personalselling rather thanperceptions of theproduct.

1. Time perception Degree of Promptness Set aside sufficienegotiation. Eg: Ethopians

2.Spatial perception Use of physical space Differences in spof apprenhensionV/s Americans

3. Materialism

perception

Motivators and what ppl

desire

Eg: Some culture

money

ENVIRONMENT ASPECT IMPLICATION/CONDITIONS STRATEGY TO BVARY OFF


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VARY OFF

CULTURAL 4. Friendshipperception

Trust, friendship, and serviceV/s more pragmatic case bycase orientation

Eg: Saudi Arabia

5. Contractualperception

Relationship Vs Transactional Some places wrinecessary and o

insignificant; otalmost offensive


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International Market Entry

Operational Strategies Strategic Strategies

Indirect Exporting:Sells to domestic intermediaries

Joint Ventures:Local and foreign firms shareownership.

Direct Exporting:Sells directly to foreign buyer orforeign intermediaries- local companyships and handles financing and

shipping documentation

Foreign Production:Establishes solely owned productionin foreign facilities.

Foreign Licensing:Exports know-how throughmanagement contract.


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Segmentation

Segmentation is referred as Comparative Analysis.

Advantages:

Firm can employ same marketing strategy in several countries.

Economies of scale and learning curve effects.

Comparisons help in controlling and evaluating marketing performance.


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International Product Strategies

Economic Considerations

Cultural Considerations

Political/Legal Considerations


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International Pricing Strategies

Transfer Pricing

Dumping

Government Influence


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Personal Selling

Trade Fairs

Direct mails

Advertising & Publicity

International PromotionalStrategy


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Domestic versus Foreign Sales People

Domestic Foreign

More knowledge about thecompany and its products.

More knowledge about the marand culture.

Better connected toobtainconcessions

Better connected with custome

More expensive Less expensive


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Distribution Strategies

Exporting

Licensing

Joint Venture

Foreign Production

First

AspectInternational PL

International SC

InternationalDistribution

Second

Aspect


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International PLC

New

Product

AdvancedNation

GrowingProduct

Otheradvancednations

OldProduct

Lessdevelopednation

Stage Import/Export

TargetMarket

Competitors

Pron C

Localinnovation

None OriginCountry

Few localfirms

Inithig

Overseasinnovation

Increasingexport

Moreadvancednations

Few localfirms

Decdueecoof s

Maturity Stableexport

Advancednations

and LDCs

Advancednations

Sta

Worldwideimitation

Decliningexport

LDCs Advancednations

Incduelow

Reversal IncreasingImport

Advancednation

Advancednationsand LDCs

Incduecom

ve


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International SCM

Bull whip effect of industrial markets tend to be higher

Integration of channels to reduce this effect

SCM requires developing trust between and within firms

99% delivery reliability in four weeks is more acceptable than 85% reliability in two

weeks


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Promotional Strategy for SMEs

Use of new technology International development

SME Chamber of India

Trade Promotion Organizations

Investment Boards

Financial Institutions

BI-LATERAL TRADE DIVISIONS

Export Promotion Council

Indian SME Knowledge Forum

Industrial and SME Research

Centre of India (ISRCI)


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Promotional Strategy of TATA

Sub functions within department

order generationorder fulfilmentmarket development

Corus: Europes second largest steel maker withoperations in the UK and mainland Europe and over40,000 employees worldwide

Tata Chemicals North America produces natural sodaash, which requires much less energy, capital and rawmaterials than synthetic soda ash production, thusmaking it a significantly less costly process. This costdifferential gives the company a competitive edge ininternational markets.

Internalcampaigns

InternalMarketingprograms


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Presented by-Apoorva Arora 401

Basant Boob 402Neha Jain 405Arjun Kaushik 407Arjun Kochhar 408Siddharth Lahoti 409

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IM grp1.pptx