Submitted TO:

Sir.Ahmed Zafar

Report on Global
Marketing Control
System

Prepared BY:

 Waqas Hazir 2083125


 INTRODUCTION

The globalization of marketing has put tremendous pressure on Multi-naturals

(MNC) pricing systems. Over the past few decades, as companies moved from

purely domestic operations to exporting and then to overseas manufacturing

and marketing, they had to transform their pricing structures. One of the four

major elements of the marketing mix is price. Pricing is an important strategic

issue because it is related to product positioning. Furthermore, pricing affects

other marketing mix elements such as product features, channel decisions, and

promotion.

1. Location of Production Facility

Many companies' only participation in the global market is by exporting

products they make in their home countries. The volume of their sales abroad is

simply not large enough to justify foreign sourcing. In contrast, companies that

manufacture abroad often enjoy greater pricing flexibility. These MNCs find it

easier to respond to foreign exchange fluctuations. Mazda paid a hefty price for

not building production capacity outside of Japan. As the Japanese yen

appreciated significantly in the mid-90s against the U.S. dollar and most other

currencies, Mazda's exports of vehicles from Japan became prohibitively

expensive. Mazda's only assembly plant outside of Japan, the Flat Rock,

Michigan, facility never became a big factor. After registering big losses for

several years, Mazda's chief creditor, Sumitomo Bank, finally asked Ford to take

a controlling interest in Mazda and appointed a Ford executive as its new

Page 2 of 10
president. Now of course, the situation has reversed and the yen is much

weaker against world currencies.

3. Distribution System

Distribution dictates much in international pricing, particularly export pricing.

When a company is able to distribute its products through its own overseas

subsidiaries, it has greater control over final prices, including the ability to

adjust prices rapidly. An exporter working with independent distributors,

however, usually finds that it can control only the landed price (the exporter's

price to the distributor). As one might expect, many exporters are concerned

about the difficulty of maintaining price levels. Some firms report that

distributors mark up prices substantially – up to 200 percent in some countries.

Use of manufacturers' representatives gives a company greater price control.

Firms often attempt to establish more direct channels of distribution for

reaching their customers in overseas markets. Indeed, that is sometimes a

motivation for establishing a company-owned subsidiary. By reducing the

number of intermediaries between the manufacturer and the customer, the

adverse effects of successive markups can be avoided.

3. Foreign Currency Differentials

Economic factors, such as inflation, exchange rate fluctuations and price

controls, may hinder market entry. The dollar's unusual strength led a number

of companies to introduce compensating adjustments as part of their pricing

strategies. Since currency fluctuations are cyclical, companies with a price

Page 3 of 10
advantage when their currency is undervalued, carry an extra burden when

their currency is overvalued. You must be committed to serving international

markets and you must be creative, pursuing different pricing strategies during

different periods.

4. Nature of Product or Industry

A specialized product, or one with a technological edge, gives a company price

flexibility. In many markets there is no local production of the item;

government-imposed import barriers are minimal, and importing firms all face

similar price escalation factors. Under such circumstances, you can remain

competitive with little adjustment in price strategy. In such instances a

"skimming" price strategy is often used. Eventually, however, as price

competition develops and technological advantages shrink, you must make more

market based exceptions to your previously uniform pricing. Pricing strategies

are also influenced by industry-specific factors, such as fluctuations in the price

and availability of raw materials.

To reduce uncertainty, a growing practice of companies is to negotiate

fixed-price agreements with suppliers before making their own bids for
major contracts.

Another problem for corporations in some industries is predatory pricing by

particularly aggressive competitors. Recently, that strategy has been pursued

mainly by market-share-hungry new players, most notably those from just

recently industrialized countries (NICs) in Asia.

Page 4 of 10
Decentralized Pricing Pros and Cons

Headquarters executives cite the following reasons for giving subsidiaries or

distributors’ leeway to set local prices:

1. Timing. There may be a need for a quick response to price changes made

by competitors.

2. Relative Market Share. If the brand is one of many in a local market, the

subsidiary will be forced to follow the prices set by the market leaders.

Conversely, market leadership allows greater pricing freedom.

3. End-User Characteristics. If the local market is relatively poor, with

most consumers at lower income levels, the local subsidiary may have to

deviate from centrally determined pricing guidelines.

4. Specific Local Cost Factors. Value-added taxes and the cost of adapting

a product to a particular market may demand greater price flexibility in

some countries.

5. Capacity Utilization. A subsidiary with excess capacity in a local market

may choose to lower prices to boost demand, while tight capacity may

suggest an advantage in charging higher prices

Page 5 of 10
Than those set up to deal strictly with pricing. But despite the costs involved,

many companies measure the payback period in months, not years. Experts

anticipate that the use of such systems will grow, especially as more companies

conduct business over the Web. Although analysts maintain no growth figures

specifically for variable-pricing software, the market for supply-chain

automation, which includes such packages, is strong and growing. Sales of these

systems will burgeon from about $1.5 billion in 1997 to $8.5 billion by the year

2001, according to Dennis Bryon, vertical industry applications research

manager with International Data Corp., a market research firm in Framingham,

Mass.

Pricing Strategies under Varying Currency Conditions When Domestic

Currency is Weak When Domestic Currency is Strong

 Engage in non-price competition by improving quality, delivery and after-

sale service.

 Vigorous cost reduction.

 Shift sourcing and manufacturing overseas. Give priority to exports to

countries with relatively strong currencies.

 Trim profit margins and use marginal-cost pricing.

 Maximize expenditures in local country currency.

Page 6 of 10
  Stress price benefits.

 Expand product line and features.

 Shift manufacturing to the domestic market.

 Exploit export opportunities in all markets. Use a full-costing approach,

but employ marginal-cost pricing to penetrate new or competitive

markets.

 Speed repatriation of foreign-earned income and collections.

 Minimize expenditures in local or host country currency.

Attempt to establish more direct channels of distribution for reaching their

customers in overseas markets. Indeed, that is sometimes a motivation for

establishing a company-owned subsidiary. By reducing the number of

intermediaries between the manufacturer and the customer, the adverse

effects of successive markups can be avoided.

4. Foreign Currency Differentials

Economic factors, such as inflation, exchange rate fluctuations and price

controls, may hinder market entry. The dollar's unusual strength led a number

of companies to introduce compensating adjustments as part of their pricing

Page 7 of 10
strategies. Since currency fluctuations are cyclical, companies with a price

advantage when their currency is undervalued, carry an extra burden when

their currency is overvalued. You must be committed to serving international

markets and you must be creative, pursuing different pricing strategies during

different periods.

Centralized Pricing Pros and Cons

International pricing decisions are centralized in most global companies. There

are several reasons for that:

1. Increasing globalization of markets requires greater uniformity of prices

across markets. The existence of differing prices from country to country

often leads to gray market imports, i.e. the sourcing of a product from

low-price countries by unauthorized intermediaries for sale in high-price

countries. This results in the creation of a distribution channel parallel to

authorized channels but not under the control of the manufacturer in any

way.

2. Global companies encounter the same competitors in many markets,

requiring globally coordinated competitive strategies. A fragmented

strategy often leads to suboptimal results.

Page 8 of 10
 3. Typically, the parent company wants to forecast its annual revenues

worldwide. This often dictates setting prices centrally or, at least,

imposing some guidelines for the prices to be set by subsidiaries.

Quick Payback

Payback from the computer system, which Camelot deployed in mid-1997 after

nine months of development, should be quick. If the frequent buyer program

increases sales by one-tenth of 1%, the system will pay for itself in two years.

Marsh expects even more of a sales boost than that from 100,000 Christmas

mailers he sent out in early November. In an earlier test, within 30 days of

mailing a 10% discount coupon to about 6,000 names, more than 70% of those

customers had returned to the store, and the average purchase per customer

had almost doubled what it normally was. Within two months, more than 90% of

customers had come back to the store, with the same purchase pattern. As

Camelot’s experience shows, flexible pricing lets companies cut costs, hike

profit margins, and boost the proficiency of managing sales transactions—all

while rewarding favored customers.

Competitive Calling

In the past, Camelot executives worried little about Best Buy, Circuit City, and

other mass-market retailers, which sold few of the music CDs and cassettes that

are Camelot’s bread and butter. About three years ago, however, the rules of

Page 9 of 10
the game changed. Best Buy began selling music recordings as a “loss leader,”

charging consumers $2 to $5 less than shops such as Camelot in order to attract

consumers to higher-ticket electronics products. The retailers’ strategy “drove

10 points out of our margin,” says Marsh.

With the big retailers changing the competitive field, Camelot had to
reinvent itself and offer better pricing just to stay in the game.

Basing pricing on whatever criteria is appropriate— competition within or

outside a mall, as well as no competition in some regions—was key. “We might

price a CD higher than others, but if it’s 50 cents instead of $1 higher, someone

might not make two stops,” says Marsh. Camelot’s “repeat performer” program

encompasses 2.25 million names of frequent buyers, to whom Camelot issues $5

coupons good toward purchases on their next store visit. “It’s like an airplane

frequent flyer program,” says Marsh. Their pricing program manages customer

loyalty schemes, manages and monitors promotions, and supports sophisticated

predictions of customer purchase patterns. Camelot integrated the pricing

program into a data warehouse, which enables Marsh to perform various market

basket analyses, including calculating the s4uccess of regional promotions by

costs and margin percentage increases.

Page 10 of 10