What is a main difference between a concentrated retail system and a fragmented retail system?

Global Marketing & RD

MBA, REPORT SUBMITTED TO: PROF: AYMAN METWALY

Submitted by: Waleed Azab Salama | International Management, MBA | January, 2021

Contents

• Introduction.......................................................................................................................................................
• The Globalization of Markets and Brands
• Market Segmentation
• Product Attributes
• Distribution Strategy
• Communication Strategy
• Pricing Strategy.................................................................................................................................................
• Configuring the Marketing Mix
• New-Product Development

strategy, and pricing strategy. The marketing mix is the set of choices the firm offers to its targeted markets.

Many firms vary their marketing mix from country to country, depending on differences in national culture, economic development, product standards, distribution channels, and so on. The chapter closes with a look at new-product development in an international business and at the implications of this for the organization of the firm's R&D function.

The Globalization of Markets and Brands

In a now-classic Harvard Business Review article, the late Theodore Levitt wrote lyrically about the globalization of world markets. Levitt's arguments have become something of a lightning rod in the debate about the extent of globalization.

According to Levitt, A powerful force drives the world toward a converging commonalty, and that force is technology. It has proletarianized communication, transport, and travel. The result is a new commercial reality-the emergence of global markets for standardized consumer products on a previously unimagined scale of magnitude. Gone are accustomed differences in national or regional preferences.

The globalization of markets is at hand. With that, the multinational commercial world nears its end, and so does the multinational corporation. The multinational corporation operates in a number of countries and adjusts its products and practices to each-at high relative costs. The global corporation operates with resolute consistency-at low relative cost-as if the entire world were a single entity; it sells the same thing in the same way everywhere. Commercially, nothing confirms this as much as the success of McDonald's from the Champs Elysees to the Ginza, of Coca-Cola in Bahrain and Pepsi-Cola in Moscow, and of rock music, Greek salad, Hollywood movies, Revlon cosmetics, Sony television, and Levi's jeans everywhere. Ancient differences in national tastes or modes of doing business disappear.

The commonalty of preference leads inescapably to the standardization of products, manufacturing, and the institutions of trade and commerce. This is eloquent and evocative writing, but is Levitt correct? The rise of the global media phenomenon from CNN to MTV, and the ability of such media to help shape a global culture, would seem to lend weight to Levitt's argument. If Levitt is correct, his argument has major implications for the marketing strategies pursued by international business.

However, many academics feel that Levitt overstates his case. Although Levitt may have a point when it comes to many basic industrial products, such as steel, bulk chemicals, and semiconductor chips, globalization in the sense used by Levitt seems to be the exception rather than the rule in many consumer goods markets and industrial markets.

Even a firm such as McDonald's, which Levitt holds up as the archetypal example of a consumer products firm that sells a standardized product worldwide, modifies its menu from country to country in light of local consumer preferences. In the Middle East, for example, McDonald's sells the McArabia, a chicken sandwich on Arabian-style bread, and in France, the Croque McDo, a hot ham and cheese sandwich.

On the other hand, Levitt is probably correct to assert that modem transportation and communications technologies are facilitating a convergence of certain tastes and preferences among consumers in the more advanced countries of the world, and this has become even more prevalent since he wrote.

The popularity of sushi in Los Angeles, hamburgers in Tokyo, hip-hop music, and global media phenomena such as MTV all support this contention. In the long run, such technological forces may lead to the evolution of a global culture. At present, however, the continuing persistence of cultural and economic differences between nations acts as a brake on any trend toward the standardization of consumer tastes and preferences across nations. Indeed, that may never occur.

Some writers have argued that the rise of global culture doesn't mean that consumers share the same tastes and preferences. Rather, people in different nations, often with conflicting viewpoints, are increasingly participating in a shared "global" conversation, drawing upon shared symbols that include global brands from Nike and Dove to Coca-Cola and Sony. But the way in which these brands are perceived, promoted, and used still varies from country to country, depending upon local differences in tastes and preferences.

Furthermore, trade barriers and differences in product and technical standards also constrain a firm's ability to sell a standardized product to a global market using a standardized marketing strategy. We discuss the sources of these differences in subsequent sections when we look at how products must be altered from country to country. In short, Levitt's globally standardized markets seem a long way off in many industries.

Market Segmentation

Market segmentation refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important ways. Markets can be segmented in numerous ways: by geography, demography (sex, age, income, race, education level, etc.), sociocultural factors (social class, values, religion, and lifestyle choices), and psychological factors (personality).

Because different segments exhibit different patterns of purchasing behavior, firms often adjust their marketing mix from segment to segment. Thus, the precise design of a product, the pricing strategy, the distribution channels used, and the choice of communication strategy may all be varied from segment to segment.

The goal is to optimize the fit between the purchasing behavior of consumers in a given segment and the marketing mix, thereby maximizing sales to that segment. Automobile companies, for example, use a different marketing mix to sell cars to different socioeconomic segments. Thus, Toyota uses its Lexus division to sell high-priced luxury cars to high-income consumers, while selling its entry-level models, such as the Toyota Corolla, to lower-income consumers.

Product Attributes

A product can be viewed as a bundle of attributes. For example, the attributes that make up a car include power, design, quality, performance, fuel consumption, and comfort; the attributes of a hamburger include taste, texture, and size; a hotel's attributes include atmosphere, quality, comfort, and service.

Products sell well when their attributes match consumer needs (and when their prices are appropriate). BMW cars sell well to people who have high needs for luxury, quality, and performance, precisely because BMW builds those attributes into its cars. If consumer needs were the same the world over, a firm could simply sell the same product worldwide.

However, consumer needs vary from country to country, depending on culture and the level of economic development. A firm's ability to sell the same product worldwide is further constrained by countries' differing product standards. This section reviews each of these issues and discusses how they influence product attributes.

CULTURAL DIFFERENCES

Countries differ along a whole range of dimensions, including social structure, language, religion, and education. These differences have important implications for marketing strategy. For example, hamburgers do not sell well in Islamic countries, where the consumption of ham is forbidden by Islamic law.

The most important aspect of cultural differences is probably the impact of tradition. Tradition is particularly important in foodstuffs and beverages. For example, reflecting differences in traditional eating habits, the Findus frozen food division of Nestle, the Swiss food giant, markets fish cakes and fish fingers in Great Britain, but beef bourguignon and coq au vin in France and vitello con funghi and braviola in Italy.

In addition to its normal range of products, Coca-Cola in Japan markets Georgia, a cold coffee in a can, and Aquarius, a tonic drink, both of which appeal to traditional Japanese tastes.

For historical and idiosyncratic reasons, a range of other cultural differences exist between countries. For example, scent preferences differ from one country to another. SC Johnson, a manufacturer of waxes and polishes, encountered resistance to its lemon-scented Pledge furniture polish among older consumers in Japan. Careful market research revealed the polish smelled similar to a latrine disinfectant used widely in Japan. Sales rose sharply after the scent was adjusted.

In another example, Cheetos, the bright orange and cheesy-tasting snack from PepsiCo's Frito-Lay unit, do not have a cheese taste in China. Chinese consumers generally do not like the taste of cheese because it has never been part of traditional cuisine and because many Chinese are lactose-intolerant.

There is some evidence of the trends Levitt talked about. Tastes and preferences are becoming more cosmopolitan. Coffee is gaining ground against tea in Japan and Great Britain, while American-style frozen dinners have become popular in Europe (with some fine-tuning to local tastes).

Taking advantage of these trends, Nestle has found that it can market its instant coffee, spaghetti bolognese, and Lean Cuisine frozen dinners in essentially the same manner in both North America and Western Europe. However, there is no market for Lean Cuisine dinners in most of the rest of the world, and there may not be for years or decades. Although some cultural convergence has occurred, particularly among the advanced industrial nations of North America and Western Europe, Levitt's global culture characterized by standardized tastes and preferences is still a long way off.

ECONOMIC DEVELOPMENT

Just as important as differences in culture are differences in the level of economic development. Consumer behavior is influenced by the level of economic development of a country. Firms based in highly developed countries such as the United States tend to build a lot of extra performance attributes into their products. These extra attributes are not usually demanded by consumers in less developed nations, where the preference is for more basic products. Thus, cars sold in less developed nations typically lack many of the features found in developed nations, such as air-conditioning, power steering, power windows, radios, and cassette players.

For most consumer durables, product reliability may be a more important attribute in less developed nations, where such a purchase may account for a major proportion of a consumer's income, than it is in advanced nations. Contrary to Levitt's suggestions, consumers in the most developed countries are often not willing to sacrifice their preferred attributes for lower prices.

Consumers in the most advanced countries often shun globally standardized products that have been developed with the lowest common denominator in mind. They are willing to pay more for products that have additional features and attributes customized to their tastes and preferences.

For example, demand for top-of-the-line four-wheel-drive sport utility vehicles, such as Chrysler's Jeep, Ford's Explorer, and Toyota's Land Cruiser, has been largely restricted to the United States. This is due to a combination of factors, including the high income level of U. consumers, the country's vast distances, the relatively low cost of gasoline, and the culturally grounded "outdoor" theme of American life.

PRODUCT AND TECHNICAL STANDARDS

Even with the forces that are creating some convergence of consumer tastes and preferences among advanced, industrialized nations, Levitt's vision of global markets may still be a long way off because of

DIFFERENCES BETWEEN COUNTRIES

The four main differences between distribution systems are retail concentration, channel length, channel exclusivity, and channel quality.

Retail Concentration

In some countries, the retail system is very concentrated, but it is fragmented in others. In a concentrated retail system, a few retailers supply most of the market. A fragmented retail system is one in which there are many retailers, no one of which has a major share of the market. Many of the differences in concentration are rooted in history and tradition.

In the United States, the importance of the automobile and the relative youth of many urban areas have resulted in a retail system centered on large stores or shopping malls to which people can drive. This has facilitated system concentration.

Japan, with a much greater population density and a large number of urban centers that grew up before the automobile, has a more fragmented retail system, with many small stores serving local neighborhoods and to which people frequently walk. In addition, the Japanese legal system protects small retailers. Small retailers can try to block the establishment of a large retail outlet by petitioning their local government.

There is a tendency for greater retail concentration in developed countries. Three factors that contribute to this are the increases in car ownership, number of households with refrigerators and freezers, and number of two-income households. All these factors have changed shopping habits and facilitated the growth of large retail establishments sited away from traditional shopping areas.

The last decade has seen consolidation in the global retail industry, with companies such as Walmart and Carrefour attempting to become global retailers by acquiring retailers in different countries. This has increased retail concentration.

In contrast, retail systems are very fragmented in many developing countries, which can make for interesting distribution challenges. In rural China, large areas of the country can be reached only by traveling rutted dirt roads. In India, Unilever has to sell to retailers in 600,000 rural villages, many of which cannot be accessed via paved roads, which means products can reach their destination only by bullock, bicycle, or cart. In neighboring Nepal, the terrain is so rugged that even bicycles and carts are not practical, and businesses rely on yak trains and the human back to deliver products to thousands of small retailers.

Channel Length

Channel length refers to the number of intermediaries between the producer (or manufacturer) and the consumer. If the producer sells directly to the consumer, the channel is very short. If the producer sells

through an import agent, a wholesaler, and a retailer, a long channel exists. The choice of a short or long channel is in part a strategic decision for the producing firm. However, some countries have longer distribution channels than others.

The most important determinant of channel length is the degree to which the retail system is fragmented. Fragmented retail systems tend to promote the growth of wholesalers to serve retailers, which lengthens channels.

The more fragmented the retail system, the more expensive it is for a firm to make contact with each individual retailer. Imagine a firm that sells toothpaste in a country where there are more than a million small retailers, as in rural India and China. To sell directly to the retailers, the firm would have to build a huge sales force. This would be very expensive, particularly since each sales call would yield a very small order. But suppose a few hundred wholesalers in the country supply retailers not only with toothpaste but also with all other personal care and household products. Because these wholesalers carry a wide range of products, they get bigger orders with each sales call, making it worthwhile for them to deal directly with the retailers.

Accordingly, it makes economic sense for the firm to sell to the wholesalers and the wholesalers to deal with the retailers. Because of such factors, countries with fragmented retail systems also tend to have long channels of distribution, sometimes with multiple layers.

The classic example is Japan, where there are often two or three layers of wholesalers between the firm and retail outlets. In countries such as Great Britain, Germany, and the United States where the retail system is far more concentrated, channels are much shorter.

When the retail sector is very concentrated, it makes sense for the firm to deal directly with retailers, cutting out wholesalers. A relatively small sales force is required to deal with a concentrated retail sector, and the orders generated from each sales call can be large. Such circumstances tend to prevail in the United States, where large food companies may sell directly to supermarkets rather than going through wholesale distributors.

The rapid development of the Internet in recent years has helped to shorten channel length. For example, the Seattle-based outdoor equipment retailer REI sells its products in Japan via a Japanese-language website, thereby eliminating the need for a retail presence on the ground in Japan, which obviously shortens the channel length between REI and its customers.

However, there are definite drawbacks with such a strategy. In the case of REI, consumers cannot receive the same level of advice over the Internet as in physical retail stores, where salespeople can help customers choose the right gear for their needs. So although REI benefits from a short channel in Japan, it may lose significant sales due to the lack of point-of-sale service.

Another factor that is shortening channel length in some counties is the entry of large discount superstores, such as Carrefour, Walmart, and Tesco. The business model of these retailers is in part based upon the idea that in an attempt to lower prices, they cut out wholesalers and instead deal directly with manufacturers. Thus, when Walmart entered Mexico, its policy of dealing directly with manufacturers, instead of buying merchandise through wholesalers, helped to shorten distribution channels in that

Thus, after pioneering its Apple retail store concept in the United States, Apple is opening retail stores in several nations, such as the United Kingdom, to provide point-of-sales education, service, and support for its popular iPod and computer products. Apple believes that this strategy will help it to gain market share in these nations.

CHOOSING A DISTRIBUTION STRATEGY

A choice of distribution strategy determines which channel the firm will use to reach potential consumers. Should the firm try to sell directly to the consumer or should it go through retailers; should it go through a wholesaler; should it use an import agent; or should it invest in establishing its own channel?

The optimal strategy is determined by the relative costs and benefits of each alternative, which vary from country to country, depending on the four factors we have just discussed: retail concentration, channel length, channel exclusivity, and channel quality. Because each intermediary in a channel adds its own markup to the products, there is generally a critical link between channel length, the final selling price, and the firm's profit margin. The longer a channel, the greater the aggregate markup, and the higher the price that consumers are charged for the final product.

To ensure that prices do not get too high as a result of markups by multiple intermediaries, a firm might be forced to operate with lower profit margins. Thus, if price is an important competitive weapon, and if the firm does not want to see its profit margins squeezed, other things being equal, the firm would prefer to use a shorter channel.

However, the benefits of using a longer channel may outweigh these drawbacks. As we have seen, one benefit of a longer channel is that it cuts selling costs when the retail sector is very fragmented. Thus, it makes sense for an international business to use longer channels in countries where the retail sector is fragmented and shorter channels in countries where the retail sector is concentrated.

Another benefit of using a longer channel is market access-the ability to enter an exclusive channel. Import agents may have long-term relationships with wholesalers, retailers, or important consumers and thus be better able to win orders and get access to a distribution system. Similarly, wholesalers may have long-standing relationships with retailers and be better able to persuade them to carry the firm's product than the firm itself would.

Import agents are not limited to independent trading houses; any firm with a strong local reputation could serve as well. For example, to break down channel exclusivity and gain greater access to the Japanese market, Apple Computer signed distribution agreements with five large Japanese firms, including business equipment giant Brother Industries, stationery leader Kokuyo, Mitsubishi, Sharp, and Minolta.

These firms use their own long-established distribution relationships with consumers, retailers, and wholesalers to push Apple computers through the Japanese distribution system. As a result, Apple's share

of the Japanese market increased from less than 1 percent to 13 percent in the four years following the signing of the agreements.

If such an arrangement is not possible, the firm might want to consider other, less traditional alternatives to gaining market access. Frustrated by channel exclusivity in Japan, some foreign manufacturers of consumer goods have attempted to sell directly to Japanese consumers using direct mail and catalogs. REI had trouble persuading Japanese wholesalers and retailers to carry its products, so it began a direct- mail campaign and then a web-based strategy to enter Japan that is proving successful. Finally, if channel quality is poor, a firm should consider what steps it could take to upgrade the quality of the channel, including establishing its own distribution channel.

Distribution Strategy

Another critical element in the marketing mix is communicating the attributes of the product to prospective customers. A number of communication channels are available to a firm, including direct selling, sales promotion, direct marketing, and advertising. A firm's communication strategy is partly defined by its choice of channel. Some firms rely primarily on direct selling, others on point-of-sale promotions or direct marketing, and others on mass advertising; still others use several channels simultaneously to communicate their message to prospective customers.

This section looks first at the barriers to international communication. Then we will survey the various factors that determine which communication strategy is most appropriate in a particular country. After that we discuss global advertising.

BARRIERS TO INTERNATIONAL COMMUNICATION

International communication occurs whenever a firm uses a marketing message to sell its products in another country. The effectiveness of a firm's international communication can be jeopardized by three potentially critical variables: cultural barriers, source effects, and noise levels.

Cultural Barriers

Cultural barriers can make it difficult to communicate messages across cultures. We discussed some sources and consequences of cultural differences between nations in Chapter 3 and in the previous section of this chapter. Because of cultural differences, a message that means one thing in one country may mean something quite different in another.

For example, when Procter & Gamble first promoted its Camay soap in Japan, it ran into unexpected trouble. In a TV commercial, a Japanese man walked into the bathroom while his wife was bathing. The woman began telling her husband all about her new soap, but the husband, stroking her shoulder, hinted

negative perceptions about the quality of its vehicle in the United States by running advertisements that favorably compare the company's cars to more prestigious brands.

Source effects and country of origin effects are not always negative. French wine, Italian clothes, and German luxury cars benefit from nearly universal positive source effects. In such cases, it may pay a firm to emphasize its foreign origins. In Japan, for example, there is strong demand for high-quality foreign goods, particularly those from Europe. It has become chic to carry a Gucci handbag, sport a Rolex watch, drink expensive French wine, and drive a BMW.

Noise Levels

Noise tends to reduce the probability of effective communication. Noise refers to the amount of other messages competing for a potential consumer's attention, and this too varies across countries. In highly developed countries such as the United States, noise is extremely high. Fewer firms vie for the attention of prospective customers in developing countries, thus the noise level is lower.

PUSH VERSUS PULL STRATEGIES

The main decision with regard to communications strategy is the choice between a push strategy and a pull strategy. A push strategy emphasizes personal selling rather than mass media advertising in the promotional mix. Although effective as a promotional tool, personal selling requires intensive use of a sales force and is relatively costly. A pull strategy depends more on mass media advertising to communicate the marketing message to potential consumers.

Although some firms employ only a pull strategy and others only a push strategy, still other firms combine direct selling with mass advertising to maximize communication effectiveness. Factors that determine the relative attractiveness of push and pull strategies include product type relative to consumer sophistication, channel length, and media availability.

Product Type and Consumer Sophistication

Firms in consumer goods industries that are trying to sell to a large segment of the market generally favor a pull strategy. Mass communication has cost advantages for such firms, thus they rarely use direct selling. Exceptions can be found in poorer nations with low literacy levels, where direct selling may be the only way to reach consumers.

Firms that sell industrial products or other complex products favor a push strategy. Direct selling allows the firm to educate potential consumers about the features of the product. This may not be necessary in advanced nations where a complex product has been in use for some time, where the product's attributes are well understood, where consumers are sophisticated, and where high-quality channels exist that can provide point-of-sale assistance.

However, customer education may be important when consumers have less sophistication toward the product, which can be the case in developing nations or in advanced nations when a new complex product is being introduced, or where high-quality channels are absent or scarce.

Channel Length

The longer the distribution channel, the more intermediaries there are that must be persuaded to carry the product for it to reach the consumer. This can lead to inertia in the channel, which can make entry difficult. Using direct selling to push a product through many layers of a distribution channel can be expensive. In such circumstances, a firm may try to pull its product through the channels by using mass advertising to create consumer demand-once demand is created, intermediaries will feel obliged to carry the product.

In Japan, products often pass through two, three, or even four wholesalers before they reach the final retail outlet. This can make it difficult for foreign firms to break into the Japanese market. Not only must the foreign firm persuade a Japanese retailer to carry its product, but it may also have to persuade every intermediary in the chain to carry the product. Mass advertising may be one way to break down channel resistance in such circumstances.

However, in countries such as India, which has a very long distribution channel to serve its massive rural population, mass advertising may not work because of low literacy levels, in which case the firm may need to fall back on direct selling or rely on the good will of distributors.

Media Availability

A pull strategy relies on access to advertising media. In the United States, a large number of media are available, including print media (newspapers and magazines), broadcasting media (television and radio), and the Internet. The rise of cable television in the United States has facilitated extremely focused advertising (e., MTV for teens and young adults, Lifetime for women, ESPN for sports enthusiasts).

The same is true of the Internet, with different websites attracting different kinds of users, and companies such as Google transforming the ability of companies to do targeted advertising. While this level of media sophistication is now found in many other developed countries, it is still not universal. Even many advanced nations have far fewer electronic media available for advertising than the United States.

In Scandinavia, for example, no commercial television or radio stations existed until recently; all electronic media were state owned and carried no commercials, although this has now changed with the advent of satellite television deregulation. In many developing nations, the situation is even more restrictive because mass media of all types are typically more limited.

A firm's ability to use a pull strategy is limited in some countries by media availability. In such circumstances, a push strategy is more attractive. For example, Unilever uses a push strategy to sell consumer products in rural India, where few mass media are available. Media availability is limited by law in some cases. Few countries allow advertisements for tobacco and alcohol products on television and radio, though they are usually permitted in print media.

For Standardized Advertising

The support for global advertising is threefold. First, it has significant economic advantages. Standardized advertising lowers the costs of value creation by spreading the fixed costs of developing the advertisements over many countries. For example, Coca-Cola's advertising agency, McCann-Erickson, claims to have saved Coca-Cola $90 million over 20 years by using certain elements of its campaigns globally.

Second, there is the concern that creative talent is scarce and so one large effort to develop a campaign will produce better results than 40 or 50 smaller efforts.

A third justification for a standardized approach is that many brand names are global. With the substantial amount of international travel today and the considerable overlap in media across national borders, many international firms want to project a single brand image to avoid confusion caused by local campaigns. This is particularly important in regions such as Western Europe, where travel across borders is almost as common as travel across state lines in the United States.

Against Standardized Advertising

There are two main arguments against globally standardized advertising. First, as we have seen repeatedly, cultural differences between nations are such that a message that works in one nation can fail miserably in another. Cultural diversity makes it extremely difficult to develop a single advertising theme that is effective worldwide. Messages directed at the culture of a given country may be more effective than global messages.

Second, advertising regulations may block implementation of standardized advertising. For example, Kellogg could not use a television commercial it produced in Great Britain to promote its cornflakes in many other European countries. A reference to the iron and vitamin content of its cornflakes was not permissible in the Netherlands, where claims relating to health and medical benefits are outlawed. A child wearing a Kellogg T-shirt had to be edited out of the commercial before it could be used in France, because French law forbids the use of children in product endorsements. The key line "Kellogg's makes their cornflakes the best they have ever been" was disallowed in Germany because of a prohibition against competitive claims. Similarly, American Express ran afoul of regulatory authorities in Germany when it launched a promotional scheme that had proved successful in other countries. The scheme advertised the offer of "bonus points" every time American Express cardholders used their cards. According to the advertisements, these bonus points could be used toward air travel with three airlines and hotel accommodations. American Express was charged with breaking Germany's competition law, which prevents an offer of free gifts in connection with the sale of goods, and the firm had to withdraw the advertisements at considerable cost.

Dealing with Country Differences

Some firms are experimenting with capturing some benefits of global standardization while recognizing differences in countries' cultural and legal environments. A firm may select some features to include in all

its advertising campaigns and localize other features. By doing so, it may be able to save on some costs and build international brand recognition and yet customize its advertisements to different cultures.

Nokia, the Finnish cell phone manufacturer, has been trying to do this. Historically, Nokia had used a different advertising campaign in different markets. In the mid-2000s, however, the company launched a global advertising campaign that used the slogan "1001 reasons to have a Nokia imaging phone." Nokia did this to reduce advertising costs and capture some economies of scale.

In addition, in an increasingly integrated world the company believes there is value in trying to establish a consistent global brand image. At the same time, Nokia is tweaking the advertisements for different cultures. The campaign uses actors from the region where the ad runs to reflect the local population, though they say the same lines.

Local settings are also modified when showcasing the phones by, for example, using a marketplace when advertising in Italy or a bazaar when advertising in the Middle East. Another example of this process looks at how Unilever built a global brand for its Dove products, while still tweaking the message to consider local sensibilities.

Communication Strategy

International pricing strategy is an important component of the overall international marketing mix. This section looks at three aspects of international pricing strategy. First, we examine the case for pursuing price discrimination, charging different prices for the same product in different countries. Second, we look at what might be called strategic pricing. Third, we review regulatory factors, such as government- mandated price controls and antidumping regulations that limit a firm's ability to charge the prices it would prefer in a country.

PRICE DISCRIMINATION

Price discrimination exists whenever consumers in different countries are charged different prices for the same product, or for slightly different variations of the product. Price discrimination involves charging whatever the market will bear; in a competitive market, prices may have to be lower than in a market where the firm has a monopoly. Price discrimination can help a company maximize its profits. It makes economic sense to charge different prices in different countries.

Two conditions are necessary for profitable price discrimination. First, the firm must be able to keep its national markets separate. If it cannot do this, individuals or businesses may undercut its attempt at price discrimination by engaging in arbitrage. Arbitrage occurs when an individual or business capitalizes on a price differential for a firm's product between two countries by purchasing the product in the country where prices are lower and reselling it in the country where prices are higher.

Which of the following is a main difference between a concentrated retail system and fragmented?

Which of the following is a main difference between a concentrated retail system?

What are the four main differences between distribution systems?

Which country has a fragmented retail system?