Contents

[hide]
y y y y y y y y y y y y y y y y y y y y y y

1 Competition-based pricing 2 Cost-plus pricing 3 Creaming or skimming 4 Limit pricing 5 Loss leader 6 Market-oriented pricing 7 Penetration pricing 8 Price discrimination 9 Premium pricing 10 Predatory pricing 11 Contribution margin-based pricing 12 Psychological pricing 13 Dynamic pricing 14 Price leadership 15 Target pricing 16 Absorption pricing 17 High-low pricing 18 Premium Decoy pricing 19 Marginal-cost pricing 20 Value Based pricing 21 Nine Laws of Price Sensitivity & Consumer Psychology 22 References

[edit] Competition-based pricing
Setting the price based upon prices of the similar competitor products. Competitive pricing is based on three types of competitive product:
y

y y

Products have lasting distinctiveness from competitor's product. Here we can assume o The product has low price elasticity. o The product has low cross elasticity. o The demand of the product will rise. Products have perishable distinctiveness from competitor's product, assuming the product features are medium distinctiveness. Products have little distinctiveness from competitor's product. assuming that: o The product has high price elasticity. o The product has some cross elasticity. o No expectation that demand of the product will rise.

[edit] Cost-plus pricing
Main article: cost-plus pricing Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price. This method although simple has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price. This appears in 2 forms, Full cost pricing which takes into consideration both variable and fixed costs and adds a % markup. The other is Direct cost pricing which is variable costs plus a % markup, the latter is only used in periods of high competition as this method usually leads to a loss in the long run.

[edit] Creaming or skimming
Selling a product at a high price, sacrificing high sales to gain a high profit, therefore µskimming¶ the market. Usually employed to reimburse the cost of investment of the original research into the product: commonly used in electronic markets when a new range, such as DVD players, are firstly dispatched into the market at a high price. This strategy is often used to target "early adopters" of a product or service. These early adopters are relatively less price-sensitive because either their need for the product is more than others or they understand the value of the product better than others. In market skimming goods are sold at higher prices so that fewer sales are needed to break even. This strategy is employed only for a limited duration to recover most of investment made to build the product. To gain further market share, a seller must use other pricing tactics such as economy or penetration. This method can come with some setbacks as it could leave the product at a high price to competitors.[1]

[edit] Limit pricing
Main article: Limit price A limit price is the price set by a monopolist to discourage economic entry into a market, and is illegal in many countries. The limit price is the price that the entrant would face upon entering as long as the incumbent firm did not decrease output. The limit price is often lower than the average cost of production or just low enough to make entering not profitable. The quantity produced by the incumbent firm to act as a deterrent to entry is usually larger than would be optimal for a monopolist, but might still produce higher economic profits than would be earned under perfect competition. The problem with limit pricing as strategic behavior is that once the entrant has entered the market, the quantity used as a threat to deter entry is no longer the incumbent firm's best response. This means that for limit pricing to be an effective deterrent to entry, the threat must in

[2] [edit] Price discrimination Main article: price discrimination Setting a different price for the same product in different segments to the market. [edit] Penetration pricing Main article: penetration pricing The price is deliberately set at low level to gain customer's interest and establishing a foot-hold in the market. For example. A way to achieve this is for the incumbent firm to constrain itself to produce a certain quantity whether entry occurs or not. based solely on the price. [edit] Predatory pricing Main article: predatory pricing Aggressive pricing intended to drive out competitors from a market. this can be for different ages or for different opening times.some way be made credible. [edit] Market-oriented pricing Setting a price based upon analysis and research compiled from the targeted market. . [edit] Premium pricing Main article: Premium pricing Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers. [edit] Loss leader Main article: loss leader A loss leader or leader is a product sold at a low price (at cost or below cost) to stimulate other profitable sales. such as cinema tickets. An example of this would be if the firm signed a union contract to employ a certain (high) level of labor for a long period of time. It is illegal in some places. The practice is intended to exploit the (not necessarily justifiable) tendency for buyers to assume that expensive items enjoy an exceptional reputation or represent exceptional quality and distinction.

based on the difference between the product's price and variable costs (the product's contribution margin per unit).dynamic pricing allows online companies to adjust the prices of identical goods to correspond to a customer¶s willingness to pay. [edit] Price leadership Main article: price leadership An observation made of oligopic business behavior in which one company. By responding to market fluctuations or large amounts of data gathered from customers . and companies whose capital investment is high. [edit] Target pricing Pricing method whereby the selling price of a product is calculated to produce a particular rate of return on investment for a specific volume of production. like automobile manufacturers..[edit] Contribution margin-based pricing Main article: contribution margin-based pricing Contribution margin-based pricing maximizes the profit derived from an individual product. and on one¶s assumptions regarding the relationship between the product¶s price and the number of units that can be sold at that price.ranging from where they live to what they buy to how much they have spent on past purchases . The target pricing method is used most often by public utilities. it employs the technique so artfully that most of the passengers on any given airplane have paid different ticket prices for the same flight. selling a product at $3. [edit] Dynamic pricing Main article: dynamic pricing A flexible pricing mechanism made possible by advances in information technology.e. and employed mostly by Internet based companies. The product's contribution to total firm profit (i. rather than $4.00. like electric and gas companies.99. The airline industry is often cited as a dynamic pricing success story. leads the way in determining prices. to operating income) is maximized when a price is chosen that maximizes the following: (contribution margin per unit) X (number of units sold). In fact. [edit] Psychological pricing Main article: psychological pricing Pricing designed to have a positive psychological impact. For example. usually the dominant competitor among several..95 or $3. the others soon following. .

an item has a marginal cost of $1. The lower promotional prices are targeted to bring customers to the organization where the customer is offered the promotional product as well as the regular higher priced products.[3] [edit] Premium Decoy pricing Method of pricing where an organisation artificially sets one product price high. in order to boost sales of a lower priced product. Also the target pricing method is not keyed to the demand for the product. A form of cost plus pricing [edit] High-low pricing Method of pricing for an organization where the goods or services offered by the organization are regularly priced higher than competitors.Target pricing is not useful for companies whose capital investment is low because. the firm selling the item might wish to lower the price to $1. If. advertisements. the selling price will be understated. By this policy. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all. for each product unit sold. pricing based on the demand for a specific product would have a likely change in the market place. and or coupons. and if the entire volume is not sold. [edit] Value Based pricing Pricing a product based on the perceived value and not on any other factor. only the addition to total cost resulting from materials and direct labor. lower prices are offered on key items. [edit] Marginal-cost pricing In business. according to this formula. The price of the product includes the variable cost of each item plus a proportionate amount of the fixed costs. for example. the practice of setting the price of a product to equal the extra cost of producing an extra unit of output. a producer charges.00 and a normal selling price is $2. [edit] Nine Laws of Price Sensitivity & Consumer Psychology . Businesses often set prices close to marginal cost during periods of poor sales. [edit] Absorption pricing Method of pricing in which all costs are recovered. but through promotions.10 if demand has waned. a company might sustain an overall budgetary loss on the product.00.

3. think CPU and PCs). and they have greater price sensitivity when the price is paid separately rather than as part of a bundle. During the 1960s. mature methods had evolved for controlling quality. the less price sensitive that buyer is when choosing between alternatives. Product quality The collection of features and characteristics of a product that contribute to its ability to meet given requirements. Price-Quality Effect Buyers are less sensitive to price the more that higher prices signal higher quality. 2. exclusive products. 9. By the mid-1950s. The smaller the given components share of the total cost of the end benefit. 4. the less sensitive buyers will be to the component's price. and is divided into two parts: Derived demand: The more sensitive buyers are to the price of the end benefit. there was a major shift in world markets. with the position of the United States declining while Japan and Europe experienced substantial growth in . During 1960±1980. Perceived alternatives can vary by buyer segment. Reference Price Effect Buyer¶s price sensitivity for a given product increases the higher the product¶s price relative to perceived alternatives.. Expenditure Effect Buyers are more price sensitive when the expense accounts for a large percentage of buyers¶ available income or budget.g. Early work in controlling product quality was on creating standards for producing acceptable products. The Strategy and Tactics of Pricing. Products for which this effect is particularly relevant include: image products. 6. these methods and techniques were extended to the service industry. 5. Thomas Nagle and Reed Holden outline 9 laws or factors that influence how a consumer perceives a given price and how price-sensitive s/he is likely to be with respect to different purchase decisions: [4][5] 1. utilizing sequential sampling techniques for tracking the mean and variance in process performance. and other factors. Fairness Effect Buyers are more sensitive to the price of a product when the price is outside the range they perceive as ³fair´ or ³reasonable´ given the purchase context. Price proportion cost: The price proportion cost refers to the percent of the total cost of the end benefit accounted for by a given component that helps to produce the end benefit (e. 8. 7. the more sensitive they will be to the prices of those products that contribute to that benefit. The Framing Effect Buyers are more price sensitive when they perceive the price as a loss rather than a forgone gain. Difficult Comparison Effect Buyers are less sensitive to the price of a known / more reputable product when they have difficulty comparing it to potential alternatives. including statistical quality control and statistical process control. by occasion. Switching Costs Effect The higher the product-specific investment a buyer must make to switch suppliers. and products with minimal cues for quality. End-Benefit Effect The effect refers to the relationship a given purchase has to a larger overall benefit. the less price sensitive they will be.In their book. Shared-cost Effect The smaller the portion of the purchase price buyers must pay for themselves.

performance measures. Quality improvement programs typically include goals for reducing warranty claims and associated costs because warranty data directly or indirectly impact most of the product quality dimensions. Quality control Concurrent engineering. Consumers became more conscious of the cost and quality of products and services. This includes the development of specifications and standards. This approach should include overlap of the manufacturer and customer views.international markets. The data collection and analysis functions for quality control involve statistical sampling. some of which contribute little or nothing to the functionality of the product but are significant in providing customer satisfaction. along with acceptance sampling. and today the goals of quality control are largely driven by consumer concerns and preferences. and tracking procedures. manufacturing. Second is the view of the consumer or user. First is the view of the manufacturer. See Manufacturing engineering Quality control (QC) is the collection of methods and techniques for ensuring that a product or service is produced and delivered according to given requirements. To consumers. This area of quality control is formally known as statistical process control (SPC) and. a high-quality product is one that well satisfies their preferences and expectations. See Process control. estimation of parameters. This consideration can include a number of characteristics. and hence overall reductions in production costs. Statistical process control focuses primarily on the conformance element of quality. See Engineering design . and construction of various control charts for monitoring the processes in making products. and deviations from these standards can lead to poor quality and low reliability. and manufacturing processes involved in fabricating the product. and materials management functions throughout an organization. and to somewhat less extent on operating performance and durability. Quality is measured by the degree of conformance to predetermined specifications and standards. Firms began to focus on total production systems for achieving quality at minimum cost. represents the traditional perception of quality management. quality function deployment. A third view relating to quality is to consider the product itself as a system and to incorporate those characteristics that pertain directly to the operation and functionality of the product. who is primarily concerned with the design. the need for scrap and rework. and corrective actions to maintain control. engineering. There are three views for describing the overall quality of a product. Efforts for quality improvement are aimed at eliminating defects (components and subsystems that are out of conformance). This trend has continued. and total quality management (TQM) are modern management approaches for improving quality through effective planning and integration of design.

NEGOTIATING YOUR CONTRACT AND MEETING ITS TERMS y y y Contract . SEMINAR AGENDA I. # Managing commercial risks through letter of credit. This involves knowledge of the following: # Updates on export finance ± Rupee and foreign currency credit facilities at pre and post shipment stages ± issues relating to merchanting trade operations. forfaiting and line of credit facilities.Acceptance Contract Terms under U. # Availing trade credit for imports in the form of supplier¶s credit or buyer¶s credit or external commercial borrowing # Identifying the country risk.S. INCOTERMS 2000: PRODUCT TRANSPORTATION AND RISK OF LOSS y What They Mean and How to Choose an Incoterm III.standby credits ± update on the proposed changes on letter of credit transactions (UCPDC ICC 600 review) # New techniques in managing export receivables through international factoring. guarantees.Offer . exporters are facing commercial risk on probable default of the unknown buyers in new markets.Risk Management in International Trade Risk Management in international trade involves reducing the cost of funds and managing the risks in international exposure Apart from foreign exchange currency risk. Law compared to the Vienna Convention (UN Convention on Contracts for International Sale of Goods) Determining Your Price II. currency risk and commercial risks in trade transactions. SELECTION OF HARMONIZED SYSTEM NUMBER AND TARIFF CONSIDERATION y y y y Choosing a Schedule B Number Considerations to Reduce Your Foreign Purchaser's Tariff Liability (and Help You Get a Price Advantage) Dispute Resolution Other Contract Considerations . Identifying the risks in international trade. quantifying and managing such risks with appropriate facilities / products / instruments are becoming professional functions of a corporate. # Managing the foreign exchange risks through risk management strategies.

GOVERNMENT SECURITY INITIATIVES y y . FORMS OF PAYMENT y y Letters of Credit Pertaining to Your Export Documents Other Terms of Payment VI. UNITED STATES GOVERNMENT EXPORT REGULATIONS y y y y y y Export Administration Regulations Destination Control Statement Shipper's Export Declaration & Automated Export System Export License Applications and Record Keeping Antiboycott Regulations and Documentation Controls Administered by the State Department and Other Agencies VIII.IV. Customs Invoice VII. TRANSPORTING YOUR PRODUCTS y y y y y Freight Forwarders Ocean Carriers and Shipping Rates Air Carriers and Shipping Rates Surface (Truck and Rail) Insurance V. DOCUMENTATION FOR YOUR EXPORT SALE y y Commercial Documents o Commercial Invoice o Packing List o Air Waybill o Dock Receipt. Warehouse Receipt o Bills of Lading (Inland and Ocean) o Insurance Certificate o Shipper's Letter of Instructions (SLI) Documents for Foreign Customs Clearance o Certificates of Origin o Consular Invoice.

Textile quota Export licence/visa document required for textile items under quota restraint 8. Shipping Bill (Through authorised Clearing agents). Export contract registration details . Make sure you get paid in a timely fashion. DOCUMENTATION The following documents are normally used in exports: 1. export regulations. B/L or AWB (Through Clearing agents) 4. Prepare the proper export documents. y Comply with current U. 3. Packing List 6. E-Form (Through authorised Commercial Bank). 9. Select the proper Incoterms for your company. Certificate Country of origin (Through Chamber) or 6(a) GSP (Through EPB) 7. Pre-shipment certificate through EPB for certain textile item s for exports to management textile item.Negotiate a profitable sales contract with your international customers. Commercial Invoice 5. 2.S. Properly classify your products.

The International Trade is governed by rules made by the World Trade Organisation (WTO). Even the largest international firms do not trade with the whole world and not every country can or will buy what a particular exporter may sell to them. certain sets of rules have been developed by the trading nations over the centuries. you may open an office. it does not bother you because you are in personal contact with a buyer for which you do not need to comply with several procedural requirements including filling and exchanging of a lot of documents. You should have intimate knowledge about the product and sources of supply. give it a name. speaking different language. currency and import regulations.INTRODUCTION Exporting is merely a selling but when it is selling at home. The economic position of the country ii. preferences. Market growth in a given product. Unit price of the product. having different customs. SELECTION OF MARKET The exporter cannot go to every country in the world to persuade people to buy his product. which could yield the best results. If you have varied sources of supply. iv. In view of scarce resources and shortage of experienced marketing personnel. . the first thing you have to do is to decide about the product. you will have no problem in procurement and shipment. You can also analyse which products are exported to which country. install phone and fix a signboard on your business premises. This information is available in the IAC of EPB. Details on WTO can be obtained from Information Advisory Centre (IAC) of the EPB. But the difference comes when you intend to sell to some one who is thousands of miles away from you. which are normally followed in foreign trade today. Size of the Market and whether it is expanding or shrinking. But if you produce the product yourself at effective cost and exercise quality control. iii. In order to facilitate trade with other countries. the exporters should be selective and concentrate on markets. Whether it is more or less than other countries. SELECTION OF A PRODUCT If you want to enter export trade. which you intend to trade. print letterheads. OPENING OF AN OFFICE After selection of product. then you can become a successful exporter within shortest possible time. However registration procedures for both imports and exports have been abolished and now registration is not required for either export or import. For this one has to examine i. REGISTRATION FOR EXPORT Previously it was mandatory to register your firm as an exporter for-five years from the nearest office of the EPB against payment of nominal fee.

Road) ix. xi. documentation fee. vii. viii. EPB can help you get price information further its trade offices posted abroad. For securing good price one has also to check up price of the same product abroad. Location of the market etc Export Process Flow. LC sight and LC Deferred payment. Name of importer iii. Arbitration clause. packing. The customer·s bank provides a ¶letter of credit·. But in case of export. Mode of shipment (Sea. vi. There are two types of LC. Terms of delivery (FOB. This funds transfer could be both before the shipment of goods or after the shipment of goods generally referred as Cash Against Documents (CAD).v. Import regime in the importing country. Currency in which transaction will be made. one should not loose sight of it. This includes the carriage of products. Air. Second arrangement is through the Letter of Credit (LC). For this one has just to calculate cost of production with packing and transportation charges and add profit. iii. and who has risk for the condition of the products at different locations within the transport process. Shipping marks if any. x. The payment may be paid immediately at sight or at a later date). Total quantity vi.)* Incoterms deal with the questions related to the delivery of the products from the seller to the buyer. CIF etc. For this one has to examine several things including the following: i. which normally contains. What price to charge to remain competitive abroad? ii. quoting of price means many things. xii. Terms of payment (There could be basically two arrangements for payment. Validity period of a contract & delivery period. Unit price v. Contract is a document. who pays for what. Name of exporter ii. SIGNING OF A CONTRACT When prices are accepted then a contract is signed with the firm for supply of goods which becomes binding on both the buyer & seller. marking charges. export and import clearance responsibilities. If there is a good mark up in price in foreign market. C&F. transportation charges. . first being through direct funds transfer without involving any credit facility. Procedure & Documentation Policy & Planning 6 QUOTING A PRICE It is easy to quote price at home. agent·s commission. While calculating prices one has to think about all the cost including. export duties etc. octroi duties. Incoterms are always used with a geographical location and do not deal with transfer of title. credit. i. insurance. which promises to pay the supplier as long as the terms are met. Item of sale iv.

For export pre-shipment and post-shipment credits are available from the Govt. attempts at achieving the best fit between the market requirements and the company's abilities in meeting these requirements. INSURANCE Insurance is necessary to recover cost in case of loss. on concessionaire rate. But where the exporters are sure that the chances of loss are minimum they do not insure consignment. The container should be in a position to carry contents to the destination in perfect condition. As a result. FACTORS INFLUENCING INTERNATIONAL MARKET SELF 2TION Every company while selecting a particular country as a market.TERMS OF DELIVERY When the exporter is making an offer. as it should be timed to keep you solvent at the time of need. which he can fulfil easily. It means that charges of the consignment are fully paid up to that point and the rest of the freight is paid by the buyer. Pakistan Packing Institute can help you. he quotes the price of his product. PACKING Packing should be sea. For reduction in cost most economical packing material be used. In this connection. He should have the necessary finances or access to finances for effecting shipment and the capacity to wait till the sale proceeds are received. term of payment plays an important role. Terms of delivery are not only important for quoting price but it also makes clear as to who is responsible for the goods if anything goes wrong. Procedure & Documentation Policy & Planning 7 The buyer sitting in the overseas market is normally not interested to receive charge of goods at one's factory site but he may be interested to get charge of goods on FOB basis which means free on Board at airport or seaport. Export Process Flow. If the offer is accepted then a contract is signed between the buyer & the seller. TRANSPORT Light and costly items are normally sent by air whereas as heavy items are shipped by sea. In each case the most economical mode should be used to reduce cost. The most frequently used terms of delivery are as under: - FINANCING FOR EXPORT The exporter should accept order. air and roadworthy. The exporter can make use of it. In case the buyer insists on Insurance then it must be done. The contract includes terms and conditions under which goods are delivered. the factors .

These factors may be studied in greater detail as under. . are country market factors and company factors.that come into consideration. while planning the international market selection.

Questions regarding the size. The position of the product on the PLC (Product Life Cycle Curve) of any given market and on the IPLC also influences the market selection and segmentation process. Thus IBM wishing to market super computers would find small market because of the product specialisation and value factors. On the other hand. political and economic analysis helps in determining the nature of market for undertaking the market selection and segmentation process. The cost is the outgrowth of product characteristics and market characteristics Marketing Factors: The company being an economic entity is influenced by economic gains while selecting and segmenting a particular market. . Nestle may choose virtually any country as its market. The profitability is judged on the basis of sales made. the level of standardisation and the position in IPLC (International Product Life Cycle) all influence the market selection process. The emphasis it lays on a particular variable through its strategy may entirely be an outcome of the company's abilities and goals. the choice of the market. The degree of product specialisation will by itself eliminate several country markets. stability. Here standardisation refers to standardisation of both pre transaction and post transaction measures like after sales service. It considers the costs and the nature of the costs against profitability of the market or the sales while assessing. Market Factors: The cultural. The degree of product specialisation. they must establish the position of the product on the PLC. The desire to survive and grow forces them to go into international markets. uncertainty and competition get answered. Very often a company may have to choose between size and growth potential. Similarly. the degree of standardisation may also influence the market selection process. Here segmentation issues become predominant if maximum gains are to be cropped (reaped). product position on PLC influences the market selection process. Thus. growth potential. Consideration to such factors is necessary for aligning the market requirement with company abilities through a marketing strategy. How much a company spends on each of its four P's of the marketing mix depends upon these factors and the entry strategy adopted. Even then. In the concave sales response function the highest returns are noticed at the lower levels of marketing expenditure because of the shape of the sales function. These questions help in deciding which markets to eliminate and which markets to concentrate upon. Thus. This is essentially an outgrowth of the fact that the market is ripe for accepting the product. Two most frequently viewed responses while undertaking cost benefit analysis are the concave sales response function and the S-shaped sales function. Most companies infact enter international markets not by choice but by the fact that they find their domestic markets drying up.5 6 International Marketing Planning a) b) c) a) b) c) 1) Country Market Factors The country market factors may again be subdivided under three heads viz: Product factors Market factors Marketing factors Product Factors: The product characteristics and the transaction characteristics play a vital role in market selection and segmentation process. a company maybe forced to eliminate certain country markets either because the product does not meet with the country specific market requirements or because it does not have an established after sales service. the value.

8 International Marketing Planning The fit between the company factors and the country market factors broadly answer the question as to which country will be selected. In fact.In case of the S-shaped sales function. it becomes necessary to understand the company factors. The impact of the predicted sales response function on the choice of market is clear. every company must determine a process for market selection. the company goals. Activity-2 a) b) How can a new company with a technologically new product undertake a similar analysis for the purpose of market selection? «««««««««««««««««««««««««««««««««««««««« «««««««««««««««««««««««««««««««««««««««« «««««««««««««««««««««««««««««««««««««««« ««««««««««««««««««««««««««««««««««« Determine whether the sales response function in the above case will be S-shaped or concave. The analysis must. Even after entering the markets a company must answer questions like. Thus. The company's resources both financial and managerial influence the market selection process. it must be pointed out here that marketing efforts by themselves can be of different types.3 THE PROCESS OF MARKET SELECTION Every company is forced to address the question of which market to enter and how. should it build. revolve around similar marketing efforts. 13. 7 International Market Selection In the exhibit above curve B represents the concave sales function where as curve A represents the Sshaped sales response. the response would be dependent upon the type of marketing effort planned. however. they provide the foothold for direction. therefore. «««««««««««««««««««««««««««««««««««««««« «««««««««««««««««««««««««««««««««««««««« «««««««««««««««««««««««««««««««««««««««« ««««««««««««««««««««««««««««««««««« 2) Company Factors As. subjects like assessment of political risk depend directly on how the company perceives the risk The company goals can also influence the market selection and segmentation process. divest or abandon the market it has . the process of market selection involves a match between market factors and company factors. the management's export market experience may determine the choice of market even when the macro analysis may be against the choice. Similarly. The management's risk consciousness determines how the company will perceive various risks while undertaking country market analysis. which is addressed in the next section. for. The company factors may be divided under three heads-the management's risk consciousness. This is the issue. therefore. a company indulging in Mail Order business may observe lower communication costs as against a company wishing to set up its own facilities in the specified market. But. In fact the financial strength of a company may force it to choose a mode of entry in spite of its not wanting to do so. although they represent the factors. and the company's resources. With every increase in marketing efforts (E) the sales response (S) can be gauged. it is assumed that a market has to be created therefore the highest returns are yielded just before the diminishing returns set in and after the marketing blocks are overcome.

in view of local and international remain domestic competition. defining the competition would help in knowing precisely how the market is not being served. Market definition must encompass both served and unserved markets. distribution channels. country market factors and company factors. Also. a company can define the market in terms of country characteristics or in terms of product characteristics. Such a definition must also include a time frame and a reference to competition. how best to export to the chosen market? To answer such questions every company must formulate procedures.entered. government requirements and political stability. All these require marketing intelligence as indicated in the following exhibit : Marketing Marketing intelligence decision Go international Assessment of global market and firm's potential or share init. demographic segmentation. and should respond differently to different marketing mix elements and programmes. This is done through market segmentation which is the process of dividing the total market into one or more parts. The process of segmentation must clearly lay down the niche in terms of measurability. . thus it would pave way for the company's positioning. Step 1: Market Definition When a company is forced with heterogeneous international market. profitability and actionability. Market definition is usually one dimensional i. local competition. a short-term market definition would involve a tactical concern. company experience Since the process of market selection begins with an attempt to match the market requirement with the company's ability. Step 2: Market Segmentation Having defined the market it becomes necessary for the company to identify the relevant segment. Thus. The time frame is essential not only from the point of performance measurement and control but also for giving direction. competitive target markets practice. How to market in For each market. This step is followed by identifying the section of the market to be captured or market segmentation. Similarly. The basic criteria for segmenting international markets maybe any one or combination of the following : geographic segmentation. each of which tends to be homogeneous in all significant aspects. Since market definition precedes segmentation it becomes necessary for it to be specific. psychographic segmentation. behavioural segmentation and benefit segmentation. it becomes imperative for the company to define the market. How to enter Size of markets. Which markets A ranking of world markets according to market to enter potential. and the final step involves determining the number of markets to he held. media. the first step involves defining the market and the company's ability. how many such markets should it hold so as to maximize its economic benefits. policies and adopt strategies which allow it to keep the focus on both. compared to domestic opportunities.e. All this makes it necessary for a company to undertake the mechanical exercise of market definition. international trade barriers. buyer behaviour. targetmarkets transportcosts. the segments should be conceptually distinguishable from each other. accessibility.local competition and the political situation.

If the definition is based on product characteristics then the segments are identified using product indicators else the segments are identified using general market indicators.9 International Market Selection (ii) (iii) (iv) (i) Measurability This involves identifying the market segment in terms of size. Most companies use the country attractiveness/competitive strength matrix for market selection as shown in the exhibit below. is actionability. It must also realise that such an analysis does not take into account the risk of international operation cost of entry into various countries and markets shared costs in international marketing. purchasing power and consumer behaviour. It must also be mentioned here that in international marketing the process of segmentation involves two levels viz. Market tariffs also influence the cost structure. before using such a matrix the company must ensure that contributing factors are identified their relationship and direction have been established weights have been allotted to such factors. however profitable it may be. This step is more or less in line with the step on market definition. it must make sure that the identified segments are profitable. Wrong choices may lead to the decline of the company. the existence of heterogeneous markets makes the task more difficult. They must know which market to build. . In other words they must define the direction of growth. If an identified segment cannot be tapped. It is here that the company's resources are matched with the identified segment. Here again. Every identified segment should be capable of being captured through effective marketing programmes. Here also the existence of heterogeneous markets compound the task. (a) Country market level and (b) customer market level. Step 3 : Determining the Markets The next step in the process is usually associated with companies who have been in the export market for long. Many new costs are added while adapting to the identified segments. Actionability The last factor but. Export Market Selection: Strategies and Assessment 10 International Marketing Planning ‡ ‡ ‡ ‡ ‡ ‡ Such a matrix helps in identifying Invest/Grow countries against Harvest/Divest countries. by no means the least. it is useless from the point of view of the company. the concept of measurability has been flouted all too often. Profitability Since the fine is an economic entity. However. Accessibility How effectively can the company reach the identified segment must also be spelled out. all the same some effective criteria must be developed by the company. The process of segmentation is the most crucial step for the survival of the fine. which to divest and which to abandon in order to optimize their return on investment. Since international markets are heterogeneous. The company must c ire that the size of the identified segment should be large enough to recover these costs.

Hamst/Divest/Licenee/Combilae Countries : They represent the direct opposite of invest/ grow countries. Because the country attractiveness is low and competitive strength is also low. Selectivity Countries : Such countries fall in the centre of the matrix representing the fact that they are neither highly attractive countries nor highly unattractive. Therefore. divesture. In such situation the company can build the market by introducing new product features. This approach is frequently used by small and middle-sized firms belonging to . (1) Reactive vs Proactive Approach When an exporter enters into foreign market on the basis of an enquiry received by him. They also represent in company terms. in such countries it makes more sense to sell out. such a country must be v har ested. They represent a large market size which can be tapped through investment in people and capital. 13. to sell out or to develop competitive strength to reap the opportunities offered by such a market.Keeping these facts in mind it becomes simple for a company to identify the market on the basis of growth. It knows which markets to divest and which to hold. through technological upgradations. Such an analysis helps a company competing in the global scene to use its limited resources more effectively.4 SOME STRATEGIES While the above procedure broadly outlines the country selection method. Invest/Grow Countries : Such countries call for a high level marketing commitment. A growth of market share in such a market would demand an equal increase in marketing effort wiping out the gains if any. If one wants to reap such benefits then he must analyse the market more closely in terms of cash required to build the strength and the potential profits. Dominate/Divest Countries : Such countries rank high on country attractiveness but low on competitive strengths. the choice rests in either of the alternatives. Therefore. he has resorted to the reactive approach. various strategies and approaches are available to the management which fit within this framework. In the absence of such an analysis the corporate profitability would fall because of inclusion of losers in the market portfolio and the company's survival itself may come into question. to maintain a close watch of cash flow and to follow a pricing policy which will minimize the investment till the operations are abandoned. a position that can be built or broken. In such decision time frame and corporate profitability become important issues. Even within markets it answers questions regarding which segments to build. The various countries that can be identified on such a matrix would fall under any one of the following heads. Such an approach for market selection reflects absence of plan nine The enquiries in such cases result from earlier participation in international markets or through contacts established. Here it becomes necessary to match the products with the marketing requirements. Some of the approaches have been discussed as under.

physiographic barriers and geo-cultural distance. some criteria for allowing for such change must also be taken into account. The expansive approach presupposes a bench mark i. in reality any firm would pursue both the modes of market selection.11 International Market Selection (a) (b) countries rated as attractive. hot or cold on the basis of seven variables. The data so collected is further sub-divided under the heads of prohibitive market factors and prohibitive product factors. legal barriers. it reflects the experience based market selection approach.e. In the contractible approach the markets are first organised on the basis of (a) general market indicators and (b) specific product indicators and then screened against knock out factors. As against the expansive approach is the contractible approach. (2) Expansive vs Contractible Approach . many exporters in India who procured enquiries through participation in international trade fairs reflected a passive entry mode or a reactive method of market selection. All other markets are screened on the basis of the similarities that exist. information regarding the general market characteristics and product characteristics is collected. Therefore. The other technique which falls under the expansive approach is the temperature gradient approach where the countries are classified as moderate. The markets which remain after such an analysis may he further knocked out on the basis of established knock out factor. Such an approach reflects marketing orientation. Similarly. a prohibitive market factor may be a barrier imposed by the government. These variables are political stability. In such an approach the international marketer has to develop an organisation with strong international marketing experience. economic development and performance. market opportunity. Geographic Segmentation This step is further sub-divided into two stages (a) information stage (b) decision stage. . this approach involves two steps for market screening. A prohibitive product factor may be factor which contrast against general market factors. The objective underlying such a mode of entry can normally be classified as `short-term profits'. Thus. If the firm decides to follow a proactive approach then it has two options for market selection. such a market or product may comfortably be knocked out. While the above approach reflects the theoretical difference. In direct contrast to the above approach is the proactive approach where a formal process of market selection is followed. cultural unity. They resort to either environmental proximity or trade policy proximity for eliminating unwanted markets. This is known as the decision stage. Customer Segmentation The markets which remain after step (a) are further petered out by a qualitative and quantitative analysis of demand and supply data. they are geographic segmentation and customer segmentation. In the information stage. Normally. Here it must be pointed out that the information collected will have to deal with ever changing variables. it either uses the home market or an established market as the base market. Therefore. Thus. It can follow the expansive approach as against the contractible approach. The clustering technique or the nearest neighbour technique are examples of the expansive approach.

.On the demand side. distribution system must be collected. This data is again matched with the market characteristics and product characteristics to arrive at the final choice of markets to be tapped. Similarly. data regarding consumer behaviour for both consumer and industrial products must be collected. on the supply side data pertaining to quantity produced. number of producers.

Sign up to vote on this title
UsefulNot useful