Unit-4

Balance of Trade and Balance of Payments:

Differences
Balance of trade
The balance of trade is the distinction between the value of a nation’s imports and exports
for a given time frame. The BoT is the largest constituent of a nation’s balance of payments.
Economists utilise the BoT to compute the associative potency of a nation’s economy. The
BoT is also known as the trade balance or the international trade balance.

Balance of payment
The balance of payment is a statement of all the transactions that are made between
entities in one nation and the rest of the world over a particular time frame, such as a
quarter or a year. To put it in other words, the BoP is a set of accounts that identifies all the
commercial transactions operated by the nation in a specific period with the remaining
nations of the world. It documents a record of all the monetary transactions performed
globally by the nation on goods, services, and income during the year.
This article is a ready reckoner guide for the students to learn the difference between the
balance of trade and balance of payments.

Balance of trade Balance of payments

                                                                Definition

Balance of trade or BoT is a financial statement that Balance of payment or BoP is a financial statement that
captures the nation’s import and export of keeps track of all the economic transactions by the
commodities with the rest of the world. nation with the rest of the world.

                                                            What does it deal with?

It deals with the net profit or loss that a country incurs It deals with the proper accounting of the transactions
from the import and export of goods. conducted by the nation.

                                                        Fundamental Difference
Balance of trade (BoT) is the difference that is Balance of payments (BoP) is the difference between
obtained from the export and import of goods. the inflow and outflow of foreign exchange.

                                                          Type of transactions included

Transactions related to goods are included in BoT. Transactions related to transfers, goods, and services are
included in BoP.

                                                          Are capital transfers included?

No Yes

                                                            What is its net effect?

The net effect of BoT can be either positive, negative, The net effect of BoP is always zero.
or zero.
The above-mentioned is the concept that is elucidated in detail about the difference
between balance of trade and balance of payment for Commerce students. To know more,
stay tuned to BYJU’S.

International or Foreign Market Selection

Process [with Steps] | International
Marketing
The following article will guide you to learn about the steps and process
required for the selection of international or foreign market.

Contents:

1. Identifying Foreign Markets

2. Proper Selection of International Markets:
3. Steps for Selection of Foreign Markets:
4. Criteria for Selecting Target Countries:
 5. Preferences Available to Indian Exporters:
6. Export Promotion Organisations:

International or Foreign Market

Selection Process
Process 1 # – Identifying Foreign
Markets:
Identification and selection of markets is the first stage in international
marketing. Before making an entry in the international market, a firm has
to identify those markets in which it can sell its products easily. To take
this decision, firm has to analyse the potentials of various foreign markets
and their respective marketing environments. Some markets may not be
potentially good, and the firm’s objectives and resources may not allow it
to operate in some other markets.

Therefore, a proper analysis is necessary for selecting the proper and

appropriate foreign market. One market differs from another but still in
one respect or the other, they can be grouped in different segments. It is
important for the firm entering the world market to segment them in such
a way that it is able to effectively meet their requirements. No matter how
much attempt is made, the firm will not succeed unless it is marketing
right product in the right market.

It costs lot of time and money to find out a suitable foreign market for a
product. No firm has unlimited resources. Proper selection of markets
would avoid waste of time and effort. One product may be more
acceptable in some countries than in others. It would, therefore, be better
to concentrate on a few markets than in more markets.
Process 2 # – Proper Selection of
International Markets:
There are ample opportunities for export in a number of countries but
taking into account the various factors it is not possible for a firm to do
business in all the countries. It has to pick out a few possible markets out
of the total markets surveyed. A preliminary study may help in avoiding
the markets which are obviously impossible or less likely ones in
comparison to other.

Criteria for Eliminating the Markets:

The following are some of the points which may serve as the criteria
for eliminating the markets from an Indian exporter’s point of view:

(i) The Government of India has banned export to some countries.

(ii) There may be some commodities, the export of which are restricted or
prohibited either completely or only to some countries.

(iii) Incompatibility of technical standards may eliminate some markets.

(iv) In some cases cost of product adaptation may be so high that an

exporter may not be able to afford it.

(v) Some importing countries may impose quotas on the import of certain
specific products from some specific countries. In such cases export is not
possible.

(vi) If some countries impose formidable tariff barriers which may make
the product too costly in the concerned country, it will not be possible to
export such commodities to those countries.
(vii)There may be some non-tariff barriers which may make the export of
some products to some countries virtually impossible or difficult.

(viii) In some cases, shipping costs may be too high. Therefore, export in
such cases is not possible.

(ix) Where the competition is quite severe it may not be easy to enter the
market or it may not be profitable to sell the product in such markets
without high costs.

(x) In the case of technically sophisticated products too much promotional

expenditure may have to be made and make them difficult to export.

In this way the foreign market selection process usually begins with a
screening process that involves gathering relevant information on each
country and after screening, eliminating loss making countries. Therefore
while selecting foreign market, one must keep in mind the above facts and
the following steps must be carefully analysed.

Process 3 # – Steps for Selection of

Foreign Markets:
First Step:

First Step of the foreign market selection process is to use macro variables
to discriminate between countries having basic opportunities and
countries with no or little opportunities. Macro variables of the country
describe the total market in terms of social, economic, geographic and
political information. For example economic statistics of the country will
disclose gross national product, population size, per capita income,
personal disposable income etc. Political stability, political relations with
the exporting country, geographical distance, climatic conditions etc., also
influence the selection of a country.
Second Step:

Second Step of the process focuses on the factors that indicate the
potential market size and acceptance of the product. Generally proxy
variables are used in this screening process. A proxy variable is a similar
or related product that indicates a demand for firm’s product. Other
factors such as stage of economic development of the country, taxes,
duties etc., are also considered while selecting a country.

Third Step:

Third Step of the selection process focuses on micro level considerations

such as competition, cost of entry and profit potential. In other words, in
this process main focus is given on profitability.

The Fourth Step:

The fourth and last step of the screening process is an evaluation of

potential target markets based on firm’s resources, objectives and
strategies.
Process 4 # – Criteria for Selecting
Target Countries:
The process of selecting target countries through the screening process
requires that the exporter identify the criteria to be used for selecting a
country or differentiate one country from the other.

Market research on international marketing has shown that the

following main factors are responsible for market selection:
1. Market Size.

2. Political Environment.

3. Social and Cultural Environment.

4. Legal Environment.

1. Market Size:

Market size is an important factor in selecting foreign markets.

Various factors influence market size and growth. Some important

factors are as under:

I. Economic Factors:

(i) Total Gross National Product

(ii) Per capita income

(iii) Income growth rate

(iv) Income and wealth distribution

(v) Personal disposable income

(vi) Import size of the country and growth rate of import

(vii) Export-Import policy and other Trade Policies of the country

(viii) Export restrictions and incentives

(ix) Balance of payment

(x) Trade agreements with other countries, and

(xi) Competition in the market and competitor’s market share.

II. Population Factors:

(i) Total population

(ii) Population growth rate

(iii) Distribution of population

(a) rural-urban wise

(b) Age-wise

(c) Sex-wise

(d) Income-wise

(e) Literacy-wise, and

(f) Religion-wise.

(iv) Work habits and occupations.

(v) Consumer mobility, geographically and within social class structure.

(vi) Population density.

III. Geographical Factors:

(i) Size of country.

(ii) Climate.

(iii) Topographical characteristics.

2. Political Environment:

The impact of an importing country’s political environment on market

selection is obvious. The exporter must consider the political influences as
they affect consumers, present and potential customers or suppliers,
international trade policies and the economy as regards business cycles,
monetary stability, and taxation system etc. It means the government
policies and their effects on the national economy should also be carefully
analysed.

Some indicators of political risks are as under:

(i) Probability of nationalization,

(ii) Government intervention and restrictions,

(iii) Limits on foreign ownership,

(iv) Restrictions on capital and profit movements, and

(v) Number of riots.

3. Social and Cultural Environment:

A culture, to some extent, determines its members’ needs and

expectations. Understanding of socio-cultural conditions of the country is
very important since, ultimately, it is the consumer who is to be served by
the firm. Therefore, the impact of social and cultural environment on
market selection is very important.

The following are the main elements of culture:

(i) Material Culture—Technology, technique and physical things

(ii) Language
(iii) Education, and

(iv) Religion, beliefs and attitudes.

4. Legal Environment:

In different countries not only are the rules for business different, but the
ways they are applied also vary? This variation presents very difficult
environment for international marketing, therefore it is necessary to
understand legal complexities before determining a selection of foreign
market.

Process 5 # – Preferences Available to

Indian Exporters:
Export promotion is an important method of encouraging economic
growth and correcting the imbalance of trade. Export promotion means
export encouragement in which old and new exporters are encouraged to
increase exports. They are provided with cash help for this purpose. Bank
loans are given. The import of some capital goods, necessary machinery
and other raw material is allowed in lieu of exports. Concessions are given
on train and marine fare to export goods.

Moreover, exporters and export organisations are given tax relief.

Economists are of the opinion that export promotion is the only way to
make India self-reliant, making balance of trade favourable, earning
foreign exchange and industrial development. Foreign exchange can be
earned only though exports.

Therefore, it is the government’s duty to give more importance to export

promotion. The success of five year plans depends upon exports. It
corrects the imbalance of trade and completes progressive projects. Since
independence India’s balance of trade has always been unfavourable.
Therefore, there is a constant need for export promotion. The various
projects of the country depend upon export growth because the
machinery, equipments and chemicals required for these projects are
imported. Export promotion is necessary in order to reduce the burden of
foreign loans. It is also used for selling new products made in India.

The various types of preferences available to Indian exporters are as

follows:

1. The Generalised System of Preferences or GSP:

Under the generalised system of preferences, the developed countries

allow the imports from developing countries like India either duty free or
at concessional rates. It has naturally helped India’s exports to such
countries. GSP makes the imports cheap in comparison to products
coming from countries which are not entitled to GSP.

To take advantage of GSP, an exporter must know- (i) whether his product
is covered by GSP, (ii) the preference margin enjoyed by his product, (iii)
quotas for the import in that country, and (iv) procedural formation on
this point may be gathered from the Indian Institute of Foreign Trade,
Trade Development Authority, the Ministry of Commerce and Export
Promotion Councils.

2. Exchange of Preferences among Developing Countries:

16 developing countries, including India, have been exchanging

preferences among themselves under 1972 agreements. These countries
are Brazil, Chile, South Korea, Spain, Mexico, Pakistan, Philippines, Tunisia,
Turkey, Uruguay, Yugoslavia, Israel, Egypt, Paraguay, Bangladesh and
India. India is also a member of ESCAP. ESCAP members are extending
preferences to each other on 93 products. The exporter must be aware of
the products covered in the list of those 93 products.

3. Import Promotion Centres in Some Countries:

Some countries have established import promotion centres for imports
from developing countries and to provide assistance to their exporters. A
directory of such import promotion centres (IPC) has been compiled by
the International Trade Centre UNCTAD/GATT and can be obtained from
them. The countries where such centres have been established are
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Hungary, Israel, Italy, Japan, New Zealand, Norway, Poland, Sweden,
Switzerland, Russia and U.K. etc.

4. Other Advantages:

An Indian exporter should also examine whether India has got any
particular advantage in the market. Such advantages may be- (a)
proximity, (b) trade dominated by persons of Indian origin, (c) existence of
shipping facilities, (d) political relations, if they are not good, business may
get setback even if the terms offered are more attractive, and (e) existence
of rupee payment agreements.

Thus, after carrying out market surveys, some markets where entry is
impossible or difficult, should be rejected and in other cases where some
additional preferences are available, those markets should be favourably
considered.

Sources of Information Available to Exporters:

There are many sources of information available to Indian exporters to

help them.

Such sources are as follows:

(i) Export Promotion Councils, Commodity Boards, the Trade Development

Authority, and various chambers of commerce.

(ii) Libraries maintained by foreign embassies in India provide a number of

references to assist exporters.
(iii) United Nations publish detailed international trade statistics which can
help the exporters in locating the market for their products.

(iv) Commercial banks and the Export Credit Guarantee Corporation of

India can provide information about the foreign exchange and payment
conditions in different countries and also the credit ratings and risks.

(v) Export-Import Bank can provide information about assistance provided

by the bank to Indian exporters and foreign importers of Indian goods.

(vi) Reserve Bank of India publishes the Reserve Bank of India Bulletin
incorporating the policies regarding exchange control regulations and
other credit information.

Process 6 # – Export Promotion

Organisations:
Export promotion organisation of each country tries to promote the
export of their country. In India also Export Promotion Councils (EPC),
Export Development Authorities, Commodity Boards, India Trade
Promotion Organization (ITPO), Exim Bank and others offer great help in
easing Indian product sales abroad. They provide information by
advertisements, sale promotion programmes and public relations. They
do not do this to help a particular firm.

Their object is to promote Indian products abroad. Main objects of export

promotion bodies are—(i) To be aware of chances of Indian product
export, (ii) To impress foreigners about Indian industrial development and
technical capacities, (iii) To improve impressions about quality of Indian
goods.

Following suggestions need to be considered for encouraging India’s

export:
1. The government should set up a control room in the trade ministry in
order to encourage exporters. This control room’s job will be to increase
the facilities of exports and to solve the problems faced in export. It
should work towards streamlining exports.

2. It is necessary to increase exports that the government sets up training

institutes. Export training should be popularised in the country. India
Trade Promotion Organisation should make special efforts. It should
arrange for foreign trade courses to be taught in various universities.
Gandhi

3. The government should arrange for the production of goods that are in
demand abroad. Proper plans should be prepared for export of goods.
Export goods should be produced continuously. The goods that are in
demand in the domestic market should be exported only when the
domestic demand is fulfilled. These goods should be of high quality and
should be priced competitively.

4. The government should give priority to the export sector. It should

publicise as to what is in demand abroad. The country’s doctors,
technicians etc., should be encouraged to work abroad on the basis of
business agreements. Artists and entertainers should be encouraged to
perform abroad. Foreign tourism should be given facilities on priority
basis.

5. Government trade has an important place in increasing exports. But in

our country it has not proved to be very effective and profitable. It is
necessary that government sector adopts a private sector like approach
towards exports. For exports to increase it is important the government
does bilateral trade agreements with other countries. It is necessary to
make foreign trade successful.

6. Indian industrialists should set up joint operations in India and the

government should do so abroad. This will have a favourable effect on our
exports. Moreover foreign industrialists should be encouraged to set up
more and more export oriented units in India. Multinational companies
can be very effective in this regard. Indian industrial houses should also
try to get foreign help.

7. It is necessary for the government to provide necessary information to

the public on exports. The people should know what to export. Country-
wise export research should be done. Studies should be done about the
possibilities of exports. People should know about the facilities that the
government gives to exporters.

Marketing Mix: the Standardization vs

Adaptation Dilemma

Market Segmentation
Market segmentation is a marketing strategy which involves separating a
wide target market into subsets of customers, enterprises, or nations who
have, or are perceived to have, common requirements, choices, and priorities,
and then designing and executing approaches to target them.
Market segmentation approaches are basically used to identify the target
clients, and provide assisting data for marketing plan components like
positioning to get certain marketing plan objectives.
Businesses may discover product differentiation approaches, or an
undifferentiated approach, including specific goods or product lines relying on
the precise demand and attributes of the target segment.
Segmentation is an important strategic tool in international marketing
because the main difference between calling a firm international and global is
based on the scope and bases of segmentation. An international firm has
different marketing strategies for different segments of countries, while a
global firm views the whole world as a market, and then segments this whole
world based on viable segmentation bases. Generally, there are three
approaches to segmentation in international marketing: macro-segmentation,
micro-segmentation and the hybrid approach.

Macro-segmentation:

Macro-segmentation or country-based segmentation identifies clusters of

countries that demand similar products.  Macro-segmentation uses
geographic, demographic and socioeconomic variables such as location, GNP
per capita, population size or family size to group countries intro market
segments, and then selects one or more segments to create marketing
strategies for each of the selected segments. This strategy enables a company
to centralize its operations and save on production, sales, logistics and
support functions. However, macro-segmentation doesn’t take into
consideration consumer differences within each country and among the
country markets that are clustered together, and fails to acknowledge the
existence of segments that go beyond the borders of a particular geographic
region. Therefore, the company may be leaving money on the table, because
the firm may be losing opportunities to solve the need of consumer segments
across these country segments. Macro-segmentation leads to misleading
national stereotyping, which results in neglect of within-country
heterogeneity. Ignoring similarity in needs across country boundaries results
in countries losing economies of scale benefits that can be achieved by
serving the needs of a wider population across country (macro-segment)
boundaries.

Table 6.5: Macro-segmentation bases

 Source: Adapted from Hassan, Craft and Kortam (2003)

Micro-segmentation:

Micro-segmentation or consumer-based segmentation involves grouping

consumers based on common characteristics using psychographic and/or
behavioristic segmentation variables such as cultural preferences, values and
attitudes, lifestyle choices. Table 6.6 “Micro-segmentation bases” and Table
6.7 “Common Ways of Segmenting Buyers” show some of the different types
of buyer characteristics used for micro-segmentation. Notice that the
characteristics fall into one of four segmentation categories: behavioral,
demographic, geographic, or psychographic.

Table 6.6 “Micro-segmentation bases”

 
 Source: Adapted from Hassan, Craft and Kortam (2003)

We’ll discuss each of these categories in a moment. For now, you can get a
rough idea of what the categories consist of by looking at them in terms of
how marketing professionals might answer the following questions:

•Behavioral segmentation:What benefits do customers want, and how do

they use our product?
•Demographic segmentation: How do the ages, races, and ethnic
backgrounds of our customers affect what they buy?
•Geographic segmentation: Where are our customers located, and how can
we reach them? What products do they buy based on their locations?
• Psychographic segmentation: What do our customers think about and
value? How do they live their lives?

Table 6.7 Common Ways of Segmenting Buyers

By
By Behavior By Demographics By Geography Psychographi
cs

• Age/
generation
• Income
• Gender • Region
• Benefits sought from the product
• Family life (continent,
• How often the product is used (usage • Activities
cycle country, state,
rate) • Interests
• Ethnicity neighborhood)
• Usage situation (daily use, holiday • Opinions
• Family • Size of city or
use, etc.) • Values
size town
• Buyer’s status and loyalty to product • Attitudes
• Occupation • Population
(nonuser, potential user, first-time • Lifestyles
• Education density
users, regular user)
• Nationality • Climate
• Religion
• Social
class
Segmenting by Behavior

Behavioral segmentation divides people and organization into groups

according to how they behave with or act toward products. Benefits
segmentation—segmenting buyers by the benefits they want from products—
is very common. Take toothpaste, for example. Which benefit is most
important to you when you buy a toothpaste: The toothpaste’s price, ability to
whiten your teeth, fight tooth decay, freshen your breath, or something else?
Perhaps it’s a combination of two or more benefits. If marketing
professionals know what those benefits are, they can then tailor different
toothpaste offerings to you (and other people like you).

Another way in which businesses segment buyers is by their usage rates—

that is, how often, if ever, they use certain products. Companies are interested
in frequent users because they want to reach other people like them. They are
also keenly interested in nonusers and how they can be persuaded to use
products. The way in which people use products can also be a basis for
segmentation.

Segmenting by Demographics

Segmenting buyers by personal characteristics such as age, income, ethnicity

and nationality, education, occupation, religion, social class, and family size
is called demographic segmentation. Demographics are commonly utilized to
segment markets because demographic information is publicly available in
databases around the world.

Age

At this point in your life, you are probably more likely to buy a car than a
funeral plot. Marketing professionals know this. That’s why they try to
segment consumers by their ages. You’re probably familiar with some of the
age groups most commonly segmented (see Table 6.8 “U.S. Generations and
Characteristics”) in the United States. Into which category do you fall?

Table 6.8 U.S. Generations and Characteristics

Generation Also Known As Birth Years Characteristics

• Experienced
very limited credit
growing up
• Tend to live
within their means
“The Silent Generation,”
• Spend more on
“Matures,” 1945 and
Seniors health care than
“Veterans,” and prior
any other age
“Traditionalists”
group
• Internet usage
rates increasing
faster than any
other group

• Second-largest
generation in the
United States
• Grew up in
prosperous times
before the
widespread use of
Baby
1946–1964 credit
Boomers
• Account for 50
percent of U.S.
consumer
spending
• Willing to use
new technologies
as they see fit

Generation 1965–1979 • Comfortable but

X cautious about
borrowing
• Buying habits
characterized by
their life stages
• Embrace
technology and
 multitasking

• Largest U.S.
generation
• Grew up with
credit cards
“Millennials,” “Echo
Generation • Adept at
Boomers,” includes 1980–2000
Y multitasking;
“Tweens” (preteens)
technology use is
innate
• Ignore irrelevant
media

Note: Not all demographers agree

on the cutoff dates between the
generations.

Today’s college-age students (Generation Y) compose the largest generation.

The baby boomer generation is the second largest, and over the course of the
last thirty years or so, has been a very attractive market for sellers. Retro
brands—old brands or products that companies “bring back” for a period of
time—were aimed at baby boomers during the recent economic downturn.
Pepsi Throwback and Mountain Dew Throwback, which are made with cane
sugar—like they were “back in the good old days”—instead of corn syrup,
are examples (Schlacter, 2009). Marketing professionals believe they
appealed to baby boomers because they reminded them of better times—
times when they didn’t have to worry about being laid off, about losing their
homes, or about their retirement funds and pensions drying up.

So which group or groups should your firm target? Although it’s hard to be
all things to all people, many companies try to broaden their customer bases
by appealing to multiple generations so they don’t lose market share when
demographics change. Several companies have introduced lower-cost brands
targeting Generation Xers, who have less spending power than boomers. For
example, kitchenware and home-furnishings company Williams- Sonoma
opened the Elm Street chain, a less-pricey version of the Pottery Barn
franchise. The Starwood hotel chain’s W hotels, which feature contemporary
designs and hip bars, are aimed at Generation Xers (Miller, 2009).

The video game market is very proud of the fact that along with Generation
X and Generation Y, many older Americans still play video games. (You
probably know some baby boomers who own a Nintendo Wii.) Products and
services in the spa market used to be aimed squarely at adults, but not
anymore. Parents are now paying for their tweens to get facials, pedicures,
and other pampering in numbers no one in years past could have imagined.

As early as the 1970s, U.S. automakers found themselves in trouble because

of changing demographic trends. Many of the companies’ buyers were older
Americans inclined to “buy American.” These people hadn’t forgotten that
Japan bombed Pearl Harbor during World War II and weren’t about to buy
Japanese vehicles, but younger Americans were. Plus, Japanese cars had
developed a better reputation. Despite the challenges U.S. automakers face
today, they have taken great pains to cater to the “younger” generation—
today’s baby boomers who don’t think of themselves as being old. If you are
a car buff, you perhaps have noticed that the once-stodgy Cadillac now has a
sportier look and stiffer suspension. Likewise, the Chrysler 300 looks more
like a muscle car than the old Chrysler Fifth Avenue your great-grandpa
might have driven.

Automakers have begun reaching out to Generations X and Y, too. General

Motors (GM) has sought to revamp the century-old company by hiring a new
younger group of managers—managers who understand how Generation X
and Y consumers are wired and what they want. “If you’re going to appeal to
my daughter, you’re going to have to be in the digital world,” explained one
GM vice president (Cox, 2009).

Income

Tweens might appear to be a very attractive market when you consider they
will be buying products for years to come. But would you change your mind
if you knew that baby boomers account for 50 percent of all consumer
spending in the United States? Americans over sixty-five now control nearly
three-quarters of the net worth of U.S. households; this group spends $200
billion a year on major “discretionary” (optional) purchases such as luxury
cars, alcohol, vacations, and financial products (Reisenwitz, 2007).

Income is used as a segmentation variable because it indicates a group’s

buying power and may partially reflect their education levels, occupation,
and social classes. Higher education levels usually result in higher paying
jobs and greater social status. The makers of upscale products such as
Rolexes and Lamborghinis aim their products at high-income groups.
However, a growing number of firms today are aiming their products at
lower-income consumers. The fastest-growing product in the financial
services sector is prepaid debit cards, most of which are being bought and
used by people who don’t have bank accounts. Firms are finding that this
group is a large, untapped pool of customers who tend to be more brand loyal
than most. If you capture enough of them, you can earn a profit (von
Hoffman, 2006). Based on the targeted market, businesses can determine the
location and type of stores where they want to sell their products.

Gender

Gender is another way to segment consumers. Men and women have

different needs and also shop differently. Consequently, the two groups are
often, but not always, segmented and targeted differently. Marketing
professionals don’t stop there, though. For example, because women make
many of the purchases for their households, market researchers sometimes try
to further divide them into subsegments. (Men are also often subsegmented.)
For women, those segments might include stay-at-home housewives, plan-to-
work housewives, just-a-job working women, and career-oriented working
women. Research has found that women who are solely homemakers tend to
spend more money, perhaps because they have more time.

Family Life Cycle

Family life cycle refers to the stages families go through over time and how it
affects people’s buying behavior. For example, if you have no children, your
demand for pediatric services (medical care for children) is likely to be slim
to none, but if you have children, your demand might be very high because
children frequently get sick. You may be part of the target market not only
for pediatric services but also for a host of other products, such as diapers,
daycare, children’s clothing, entertainment services, and educational
products. A secondary segment of interested consumers might be
grandparents who are likely to spend less on day-to-day childcare items but
more on special-occasion gifts for children. Many markets are segmented
based on the special events in people’s lives. Think about brides (and want-
to-be brides) and all the products targeted at them, including Web sites and
television shows such as Say Yes to the Dress, My Fair Wedding, Platinum
Weddings, and Bridezillas.

Resorts also segment vacationers depending on where they are in their family
life cycles. When you think of family vacations, you probably think of
Disney resorts. Some vacation properties, such as Sandals, exclude children
from some of their resorts. Perhaps they do so because some studies show
that the market segment with greatest financial potential is married couples
without children (Hill, et. al., 1990).

Keep in mind that although you might be able to isolate a segment in the
marketplace, including one based on family life cycle, you can’t make
assumptions about what the people in it will want. Just like people’s
demographics change, so do their tastes. For example, over the past few
decades U.S. families have been getting smaller. Households with a single
occupant are more commonplace than ever, but until recently, that hasn’t
stopped people from demanding bigger cars (and more of them) as well as
larger houses, or what some people jokingly refer to as “McMansions.”

The trends toward larger cars and larger houses appear to be reversing. High
energy costs, the credit crunch, and concern for the environment are leading
people to demand smaller houses. To attract people such as these, D. R.
Horton, the nation’s leading homebuilder, and other construction firms are
now building smaller homes.

Ethnicity

People’s ethnic backgrounds have a big impact on what they buy. If you’ve
visited a grocery store that caters to a different ethnic group than your own,
you were probably surprised to see the types of products sold there. It’s no
secret that the United States is becoming—and will continue to become—
more diverse. Hispanic Americans are the largest and the fastest-growing
minority in the United States. Companies are going to great lengths to court
this once overlooked group. In California, the health care provider Kaiser
Permanente runs television ads letting members of this segment know that
they can request Spanish-speaking physicians and that Spanish-speaking
nurses, telephone operators, and translators are available at all of its clinics
(Berkowitz, 2006).

As you can guess, even within various ethnic groups there are many
differences in terms of the goods and services buyers choose. Consequently,
painting each group with a broad brush would leave you with an incomplete
picture of your buyers. For example, although the common ancestral
language among the Hispanic segment is Spanish, Hispanics trace their
lineages to different countries. Nearly 70 percent of Hispanics in the United
States trace their lineage to Mexico; others trace theirs to Central America,
South America, and the Caribbean.

Segmenting by Geography

Suppose your great new product or service idea involves opening a local
store. Before you open the store, you will probably want to do some research
to determine which geographical areas have the best potential. For instance, if
your business is a high-end restaurant, should it be located near the local
college or country club? If you sell ski equipment, you probably will want to
locate your shop somewhere in the vicinity of a mountain range where there
is skiing. You might see a snowboard shop in the same area but probably not
a surfboard shop. By contrast, a surfboard shop is likely to be located along
the coast, but you probably would not find a snowboard shop on the beach.

Geographic segmentation divides the market into areas based on location and
explains why the checkout clerks at stores sometimes ask for your zip code.
It’s also why businesses print codes on coupons that correspond to zip codes.
When the coupons are redeemed, the store can find out where its customers
are located—or not located. Geocoding is a process that takes data such as
this and plots it on a map. Geocoding can help businesses see where
prospective customers might be clustered and target them with various ad
campaigns, including direct mail. One of the most popular geocoding
software programs is PRIZM NE, which is produced by a company called
Claritas. PRIZM NE uses zip codes and demographic information to classify
the American population into segments. The idea behind PRIZM is that “you
are where you live.” Combining both demographic and geographic
information is referred to as geodemographics or neighborhood geography.
The idea is that housing areas in different zip codes typically attract certain
types of buyers with certain income levels.

When entering a new market, one of the most important factors to

consider is the so-called dilemma between standardization or
adaptation.

What does it mean to standardize or adapt

marketing mix to a new market?

Standardization means an undifferentiated use of the same

Marketing Mix (4-7Ps) in all countries. In this case, the firm simply
replicates, without any changes, the same strategy in the different
markets in which it operates. In general, firms that adopt the
standardization strategy are those that are exporting for the first time,
or those that focus on cost savings through economies of scale and
for whom an adaptation process could result very costly. You can find
below some factors that favor standardization :

 Globalization of the market (consumers/customers): companies

that offer a product whose market is "global" can offer the same
product in multiple countries, catering to a wide range of
consumers.
 Economies of scale: mass production allows the firm to lower
unit production costs by increasing volumes through economies
of scale.
 Transferable competitive advantages: offering a standard
product can provide several competitive advantages. The cost
reduction provided by economies of scale allows the firm to
 introduce competitive pricing. In addition, a standard product
ensures quick response times to the market, provides a global
standardized image and better control over marketing strategies.

Adaptation means that each country/market has its Marketing Mix.

The adaptation strategy is geared towards meeting the needs of the
market, planning all business activities with the aim of efficiently
meeting the specific needs and respecting the values of local
consumers. We can take as an example beer companies. When
entering a new market we can see that one country can prefer non-
alcoholic beer. The company then has to adapt to the situation and,
for instance, decide to produce more beer which results preferable for
the chosen country/market. As in the case of the standardization, the
adaptation strategy is better suited in the presence of the following
factors:

 Differences between customers/consumers

 Differences in local competitive conditions
 Differences in local legal conditions
 High degree of service in the company’s offering
Differences between Standardization and Adaptation in Marketing Mix (4Ps)
There is no right or wrong decision. However, one of the most
important elements to emphasize is that the decision to standardize or
not is really about all the levers of the Marketing Mix (Product, Price,
Place and Promotion), and not only about the Product.
Product
When deciding which strategy to go for, there are a few elements to
consider - firstly whether company provides a good or a service. In the
case of a good, it is possible to think of products for specific target
markets; in the case of services, the factors in the image below should
be considered.
People Processing: for this kind of services, customers are “part of the
production”. In this context, a physical local presence is needed. We
can see this type of service in hospitals, restaurants or hotels. It is
therefore very difficult to standardize, due to the involvement of
customers in the production of the service.

Possession processing: customers in this type are not taking part in

the “production”, but their goods are. We take this type of service in
the fields of car repairs, transport of goods or when we hire an
electrician. In this type of service, a lower degree of customer contact
needed, compared to the previous case.

Information-based services: this kind of service collects and handles

data to create value. Customers are taking minimal involvement in the
“production” process. Telephone companies, database providers, news
and similar are using this type of service to create value.
Standardization suitability in this type of service is effective, due to the
virtual nature of these services.
Price
When considering changes and adaptations in the price, some factors
which can influence the decisions.
First of all, we should look at what internal factors can impact the
decision. Production location can influence due to the possibility of
additional costs. Market entry modes are also responsible for price
changes, when we use for example exporting or licensing and
franchising. Among external factors, local government influence and
constraints should be taken into account, in the forms of taxes, import
controls or tariffs. It is also important to analyze the macroeconomic
situation of the target market, in relation to e.g. inflation and exchange
rate fluctuation.
Place

Above we can see some external factors influencing the choice in

terms of distribution (place).
It is extremely important for the company to conduct market research
about the specific geographic characteristic of the country before
launching a new product: the development of infrastructure in the
country, for example, ensures the mobility of labor and capital
within/from the economy. Another external element to take into
accounto is the country's economic development stage, which
provides information about the profitability in the long run: it helps
decide whether to enter the market immediately, or to wait a little
longer.
Promotion
In advertising a product or service, a couple of difficulties could be
met, when entering a new market. It is always appropriate to consider
the differences that arise between domestic and target markets: first
and foremost, differences in terms of culture, value patterns and
language. Given the current historical phase, it is also important to
analyze the differences in the main digital channels and users of the
different types of media. Typically, when it comes to promotion, there
are so many differences between the domestic and foreign markets
that it sometimes becomes essential to profit of the expertise of a
local company.

Conclusions

In conclusion, whether your approach towards exporting leans

towards standardization or adaptation, it is important to carefully
consider at all the factors listed above, as it can help you analyze the
risk and accurately plan your strategy for a successful expansion in a
new market.
What Is Market Positioning?
Your market position is how your prospects and customers perceive
your brand or product in relation to your competitors. Consequently,
market positioning is the process of actively establishing a certain
image or identity of your brand to influence consumers’ perception. It’s
a critical part of your overall business strategy.
For example, let’s consider the global automobile market. Lamborghini
has established its brand and cars as high-end, luxury status symbols.
Toyota, on the other hand, is associated with safety, reliability, and
quality at an affordable price. The two companies cater to different
market segments and are very successful in doing so.
Think about how your business is being perceived in your home
market. What attributes would your target audience associate with
your brand and products? What makes you different from your
competition? Understanding your current market position is key before
you can consider expanding your business to new areas.
Why Market Positioning Is Essential When Going Global
When business owners set their focus on growing internationally, they
are spoiled for choice. Which markets should you enter?
Which languages should you translate your product into? These
decisions shouldn’t be made lightly. Significant time and resources are
required to translate and localize a product to get it ready for launch in
a new market. However, if the audience already prefers a competitor
or doesn’t have the means to buy your product, all this effort was
wasted.
A thought-out market positioning strategy can prevent such mishaps.
Our recommendation is to thoroughly analyze your target markets and
consider how your product or service will fit into the existing business
landscape. If you are simply entering as another player without a
differentiating factor, your chances for success will look bleak…
How to Develop an Effective Market Positioning Strategy
In what follows, you’ll find out how to develop a solid market
positioning strategy.
Analyze Your Competition
Before you can determine how your product will fit into a market,
consider who is already there. When you know your competition and
the current market segmentation, you can identify gaps that you can
fill. Here are some questions that can help you analyze your
competition:

 Who are the existing players in your target market?

 Who are they serving specifically?
 What is their market share?
 How fast are they growing?
 What are their strengths and weaknesses?
 What makes them unique?
 How are they marketing their products?
Create Your Positioning Statement
After familiarizing yourself with your competition, you need to define
what your brand and products are all about. Your positioning
statement explains the promise that you make to your customers and
why they should choose you over your competitors. The following
questions will help you create it:

 What is it that you are offering?

 Who is your product for/not for?
 What problem are you solving?
 What results will you get for your customers?
 What are the benefits of your product?’
 What makes you different?
Develop Your Unique Market Position
Now that you know your own business and your competition much
better, it’s time to hone in on your unique market position. There are
several market positioning strategies to help you secure your seat at
the table. You can differentiate yourself with one or many of the
following factors:
  Price: Associate your brand and products with competitive
pricing.
 Quality: Set yourself apart with a product of superior quality.
 Convenience: Make your product the easiest to use or the
easiest to purchase.
 Customer service: Offer the friendliest, fastest customer service
in the market.
 Distribution channel: Utilize a unique way of delivering your
product. For example, be the only online store for your type of
product among brick and mortar shops.
 Customer needs: Be the only product that solves a particular
problem for your clients.
 Attributes: Associate your brand and products with positive
characteristics. For instance, be the business that gives back to
the local community.
Live Your Market Positioning
Once you know which position you want to own in the new market,
you’ll need to intensify all efforts to reach it. Your market position
becomes the north star for your localization and marketing efforts.
When you translate your product, the tone and style need to create
the right image in your audience’s mind. When you choose the visuals
and design, they need to reflect the type of brand you want to be.
Luckily, localization services can greatly help you to adapt your
product and content to a specific market, and a translation
management tool is a perfect choice to manage your localization
process right from the start. Nonetheless, it’s essential to invest
enough time and resources in creating a solid localization
strategy before you start localizing.
But, what if, despite all your efforts and well-developed marketing
strategies, your positioning seems off once you’re actually live? Let’s
look at what you can do in this case.
When and How to Reposition Your Brand and Products
Your sales will be the best indicator to show if your market position is
the right one or not. Sometimes, your audience’s perception of your
brand and products is not what you intended it to be. Keep in mind
that no matter how well you prepare your entry into a new market, you
can only influence your audience to a certain extent.
The good news is: There are ways to discover what’s off with your
market position. To know for sure, ask your audience directly.
Surveys, focus groups, and interviews are great ways to find out what
your customers really want. The outcomes might surprise you!
Perhaps some assumptions that you made about your audience don’t
turn out to be true.
Armed with valuable insights from customer research, you can now
work on repositioning your business. This will involve changing your
marketing messages to accurately reflect the new position that you
are seeking.
Businesses seldom get their positioning perfectly right on the first try.
Our advice is to learn as much as you can from your customer’s
feedback and to keep adjusting your products and marketing
accordingly. Your market position is not set in stone, but always
evolving and adaptable.

Pricing Strategies in International Marketing

Mix
Pricing is one of the most relevant elements of the marketing
mix. Price is defined as the amount of money required for a product
or service. Generally, this should reflect the cost of producing the
product, the cost of providing any necessary or ancillary services, a
return for the firm, as well as the quality of the product.
Different pricing strategies
According to a firm’s objective, the following pricing strategies can be
considered:
 Competition pricing. When a company tries to differentiate
itself from its competition, it can change the price, making it
higher or lower, to achieve the planned result.
 Skimming pricing. This is a strategy where the price is set high
from the start. It is very popular in electronic and tech
companies, where the initial price slowly decreases over time,
after the release date. It gives a possibility of introducing the
product in steps to different layers of the market.
 Penetration pricing. This is something opposite to a skimming
strategy. It starts with a low price to penetrate the market,
usually with a product that already exists in the market. It helps
to gain sales and market share. In the future, the price may be
raised.
 Product Line pricing. This strategy is linked to the kind of
features of the product. E.g., a phone might have a different price
whether it has a 4k camera build in or not.
 Psychological pricing. We can see this strategy applied every
day in shops and supermarkets. It is a method of changing the
price to simulate it is smaller than it is. For example, when the
product should cost €100, it will be changed to €99 to simulate it
is cheaper.
 Cost Plus pricing. This strategy is applied when, in order to
determine the final price, a percentage is added to the costs as a
profit margin.
 Optional pricing. This technique works when a product is being
sold with an additional item, with the aim to boost up the
product’s attractiveness. It may be a phone with extra internet, a
washing machine with a 10-year guarantee etc.
 Premium pricing. This means setting up a price at a higher level
to establish the exclusiveness of a high-quality product. Premium
brand stores or luxury cars are a great example.
  Bundle pricing. It is a pricing strategy in which multiple products
are sold at one price, instead of charging each one of them
separately.

Conclusions

While looking into factors influencing the price strategies, we can

establish two main categories, namely internal and external factors:

 Among the factors that are internal to the firm, three stand out:
the knowledge of costs, the knowledge of the market and sales
channel, and the firm's business strategies. While the company
can, to some extent, exert control over these elements,
sometimes it may not be so easy to do so. Indeed, some changes
require significant cost and time efforts and thus are not always
profitable for the organization.
 External factors have a great influence on pricing decisions, but
cannot be completely controlled by the firm. They include the
macroeconomic conditions in the countries to which you want to
export, the behavior of target customers, the competitive
structure and legislative constraints of the different markets.