Other Marketing Topics

Other Marketing Topics
OTHER MARKETING TOPICS

• Product & services
• Global Marketing Issues
• Pricing Decisions
• Distribution channels
• Core concepts
Part 3 – Section B.4. Managing
:products and services
• The candidate should be able to:
▫ a. distinguish between products and services
▫ b. classify products and services, including consumer
products, industrial products, and other marketable entities
▫ c. demonstrate an understanding of product attributes,
branding, packaging, labeling, and product support services
d. demonstrate an understanding of product line decisions
and product mix decisions
▫ e. demonstrate an understanding of services marketing,
including the nature and characteristics of service
marketing strategies
▫ f. recognize the unique characteristics of international
product and services marketing g. demonstrate an
understanding of new product development strategy and
product life-cycle
Part 3 – Section B.5. Pricing strategy
▫ a. identify internal and external factors affecting pricing decisions
▫ b. demonstrate an understanding of general pricing approaches,
including cost-based pricing, value-based pricing, and competition-based
pricing
▫ c. demonstrate an understanding of new product pricing strategies,
including market skimming pricing and market penetration pricing
▫ d. demonstrate an understanding of product mix pricing strategies,
including product line pricing, optional product pricing, captive product
pricing, by-product pricing, and product bundle pricing
▫ e. demonstrate an understanding of price adjustment strategies
including discount and allowance pricing, segmented pricing,
psychological pricing, promotional pricing, geographical pricing, and
international pricing
▫ f. recognize that public policy can influence pricing decisions g.
demonstrate an understanding of how elasticity and the bargaining
power of either the buyeror seller can impact the price
Part 3 – Section B.6. Promotional mix
and distribution strategy
▫ a. define marketing communication mix
▫ b. demonstrate an understanding of the integrated marketing
communication process and recognize the need for integrated
marketing communications
▫ c. identify and define the components of the overall
communication mix, including promotional tools and promotion
mix
▫ d. demonstrate an understanding of the advertising process,
including setting advertising objectives, setting the advertising
budget, developing advertising strategy, and advertising
evaluation
▫ e. demonstrate an understanding of the sales promotion process,
including sales promotion objectives, tools, strategy, and
evaluation
Part 3 – Section B.6. Promotional mix
and distribution strategy
▫ f. recognize the importance of public relations and identify
related tool
▫ g. demonstrate an understanding of the role of the personal
selling process as an element of promotional mix
▫ h. define relationship marketing i. demonstrate an understanding
of the direct marketing model, its benefits, forms of direct
marketing, integrated campaign process, and ethical issues
▫ j. define the nature and functions of distribution channels k.
demonstrate an understanding of distribution channel behavior
and organizations, including vertical, horizontal, and hybrid
marketing systems and channel disintegration trends
▫ l. demonstrate an understanding of distribution channel design
decisions, including analysis of consumer service needs, defining
channel objectives and constraints, identifying and evaluating
major alternatives, and global implementations
• Core concepts
Product & services
• 1. A product strategy should align the approaches
taken to choosing the product mix and product
lines, branding, packaging, and labeling.
▫ a. Kotler (page 407) broadly defines a product as
“anything that can be offered to a market to satisfy a
want or need.” This definition includes not only
physical things such as goods, but also services, ideas,
information, experiences, places, and people.
▫ b. A service is “an act or performance” offered to

another party. No transfer of ownership of anything is
involved in the performance of a service.
Product & services
• 2. The attractiveness of the offering depends on the
features and quality of the product, the mix and quality
of the services, and price.
• 3. A product may be analyzed in terms of the customer

value hierarchy:
▫ a. Core benefit (e.g., transportation)
▫ b. Basic product (a car that simply provides the core
benefit)
▫ c. Expected product (a car with standard features and
quality)
▫ d. Augmented product (a car that exceeds expectations) e.
Potential product (a car that reflects every possible future
augmentation and ways to differentiate the product)
Product & services
• 4. In industrialized nations, product augmentation through
customer service, delivery options, packaging, financing, etc., is the
basis for competition. Hence, the customer’s consumption
system must be understood, that is, how the customer acquires,
uses, pays for, and maintains the product.
• 5. The relationships among products are described in the product

hierarchy:
▫ a. Need family
▫ b. Product family (all product classes that satisfy the need reasonably
well)
▫ c. Product class (products that are functionally related)
▫ d. Product line (products that are closely related)
▫ e. Product type (products in a line that share one of the forms of the
product)
▫ f. Product variant, item, or storekeeping unit (a product distinguished by
an attribute such as size or price)
Product & services
• 6. Product Classifications
▫ a. Durability and tangibility
 1) Nondurable goods (tangibles that are quickly consumed)
 2) Durable goods (tangibles that are multi-use)
 3) Services (intangibles that are indivisible, variable, and
perishable)
▫ b. Consumer goods
 1) Convenience goods (frequent purchase, low effort)
 2) Shopping goods (comparison before purchase)
 a) Homogeneous (price differentiated) b) Heterogeneous
(feature or service differentiated)
 3) Specialty goods (special purchasing effort) 4) Unsought
goods (customers tend not to think of purchasing)
Product & services
▫ C. Industrial goods
 1) Materials and parts
 a) Raw materials (farm products and such natural
products as crude oil or lumber)
 b) Manufactured materials and parts (component
materials such as cement, tires)
 2) Capital items
 a) Installation (buildings and certain equipment, such
as an elevator)
 b) Equipment (portable equipment and tools)
Product & services
▫ 3) Supplies
 a) Maintenance and repair products
 b) Operating supplies
▫ 4) Business services
 a) Maintenance and repair
 b) Business advisory (e.g., accounting, legal, or IT)
Product & services
• 7. Branding is the development, maintenance, and
protection of a unique identity for the selling firm. Branding
results from a large long-term investment in advertising, other
forms of promotion, and packaging.
▫ a. A brand name is legally protected under U.S. trademark law
for an indefinite period.
▫ b. A brand differentiates the seller’s product in the minds of
customers because it conveys any or a combination of the
following meanings:
 1) The nature of the user
 2) A personality
 3) Core values
 4) A culture
 5) Product benefits
 6) Product attributes
Product & services
• 7. Branding
▫ c. Brand attributes (price, safety, quality, performance, etc.) are at
the lowest level of the brand pyramid, benefits are in the
middle, and beliefs and values are at the top. Thus, a brand name
should be related in customer perceptions with a key benefit or,
preferably, multiple benefits to protect against competitors’
moves and changes in customers’ preferences.
 1) A strong brand usually has a strong emotional or nonrational
appeal (the top of the pyramid).
• d. Brand identity results not only from choices of the name,
logo, colors, tagline, and symbol, but also from fulfilling the
implicit promises to deliver specified benefits to customers.
Brand bonding occurs when the total customer experience
is consistent with the firm’s promises. Internal branding is
necessary to ensure that everyone in the firm acts consistently
with those promises.
Product & services
• 7. Branding
▫ e. According to Kotler (page 422), brand equity is “the positive
differential effect that knowing the brand name has on customer
response to the product or service.” It may be measured by the
incremental price a customer will pay for the product. An effect of
brand equity is customer preferences for the brand when another
product is essentially identical.
 1) Brand valuation is financial value. Some brands have
valuations in the tens of billions of dollars.
 2) Brand equity is a firm asset that correlates with the degree of
customer loyalty. Thus, a brand may progress from being unknown
to brand awareness, brand acceptability, brand preference, and
brand loyalty. Brand equity is a component of customer equity,
so management of brand equity is an important means of
enhancing customer lifetime value.
Product & services
• 7. Branding
▫ f. The firm must make the following decisions
about branding:
 1) Whether to brand (see, for example, proliferation
of generics in supermarkets)
 2) Sponsorship
 a) Manufacturer (national) brand
 b) Distributor (private or reseller) brand
 c) Licensed brand name
 d) Private brands developed by wholesalers and
resellers
Product & services
• 7. Branding
▫ f. The firm must make the following decisions
about branding:
 3) Brand names
 a) Names for individual products (avoidance of risk to
the firm’s brand equity if the product fails)
 b) Blanket family names (advantages are lower
development cost and immediate name recognition)
 c) Family names for different product lines d)
Corporate name added to names for individual
products
Product & services
• 7. Branding
▫ g. Brands may be functional brands (e.g., detergents),
image brands (e.g., status symbols), or experiential brands
(e.g., theme parks or coffee shops). Development of a brand
may be in one of the firm’s existing product categories or in
a new product category.
 1) Line extension (new items in the same product category,
e.g., new ice cream flavors)
 2) Brand extension (new product categories)
 3) Multibrands (new brands, i.e., flanker brands, in a
category)
 4) New brands (new names and new categories) 5) Co-
branding (dual branding, or an offering using different brand
names, e.g.,using one brand as an ingredient of another)
Product & services
• 7. Branding
▫ h. One effective means of developing and marketing
new products is the use of line extensions and
brand extensions. The concept behind extension is
that consumers are already familiar with the firm’s
major brand names. Thus, if a new product carries the
same brand name, it will be more likely to succeed.
Carrying an established brand name enables a new
product to more easily fill a niche in the marketplace.
Furthermore, extensions make efficient use of
promotional costs because customers are already
familiar with the quality of the products created and
manufactured under the brand. Most new products are
line extensions.
Product & services
• 8. Packaging is an element of the product strategy. It
consists of designing and producing the container.
▫ a. An effective package makes a good general impression, attracts
attention, is descriptive, and instills confidence.
▫ b. A customer may pay more for a better (more convenient,
dependable, or prestigious) package.
▫ c. The package advertises the firm’s and the brand’s image. d. An
invention of a new type of package may provide greater customer
value, e.g., a better way of dispensing the product. e. Package
design begins with deciding what it should do. Other decisions
include size, shape, color, materials, text, environmental and
safety features, and other matters. These decisions must be
consistent with pricing and promotional strategies.
 1) Package testing includes not only engineering tests but also
visual, retailer, and customer tests.
Product & services
• 9. Labeling identifies the product and brand;
describes the nature and grade of the product (if
applicable), the producer, and the content; provides
usage instructions; and serves as a promotional tool.
▫ a. Labels vary greatly in the amount of information
conveyed, not least because legal disclosure
requirements differ.
▫ b. Under the Federal Trade Commission Act of
1914, labels must not be false, misleading, or
deceptive.
▫ c. The Fair Packaging and Labeling Act of 1967
established required labeling standards.
Product & services
• 10. A product mix contains product lines. A product
line is often created by adding modular elements
to a basic platform so as to satisfy different
customer wants.
▫ a. Analysis of a product line should provide a basis for
decisions about product-line strategies, such as
building, maintaining, harvesting, or divesting a product
line.
 1) A financial analysis should determine the sales and profits
for each item in a product line. This process measures
profit margins and the possibilities for increasing sales or
profits through price increases or additional promotion.
 2) The market profile depicts how items in the product line
are situated in relation to the competition. Product mapping is
useful in comparing the locations of the firms’ and competitors’
products and customer wants. Mapping may reveal
underserved market segments.
Product & services
• 10.Product lines.
▫ b. The length should be profit-maximizing but
also reflects other objectives.
 1) A line may be structured to take advantage of up
selling of a more expensive product or cross-selling of
a related product. It may also be diversified to hedge
against changes in economic cycles.
 2) Longer lines reflect a desire for greater market share
and market growth. Shorter lines may indicate an
emphasis on profits.
 3) Longer lines reflect pressures to use excess capacity
and to satisfy customers but also increase costs.
Product & services
• 10. A product mix contains product lines.
▫ b. The length should be profit-maximizing but
also reflects other objectives.
 4) Line stretching may be down market to provide
lower-priced products. The purpose may be to exploit a
growth opportunity to move against a low-price
competitor that has invaded the firm’s markets, or to shift
out of a declining market.
 a) Upmarket stretching may reflect a search for growth,
greater profit margins, or positioning as a full-product-line
seller.
 b) Two-way stretching is a middle market firm’s move
into the upmarket and the downmarket.
Product & services
▫ b. The length should be profit-maximizing
but also reflects other objectives.
 5) Line filling adds products within the firm’s
current range. This strategy may be
counterproductive if it results in customer confusion
and does not meet a customer need. A line-filling
product should be differentiated in the minds of
customers so that it has a just-noticeable
difference.
Product & services
▫ c. Line modernization is essential to
competitiveness. The issue is whether it
should be incremental (less costly but also less
competitively effective) or a complete
makeover (more costly but giving competitors
less time to respond). If markets are evolving
quickly, the process should be continuous.
 1) Timing is crucial. Premature modernization may harm
sales of existing products, but delayed modernization may
allow a competitor to establish an unassailable position.
Product & services
▫ d. If the firm considers featuring certain
products in the line, it must decide whether to
support underperforming products or to promote
the most successful products.
▫ e. Pruning is necessary when financial analysis

reveals that a product is hurting profits or when
the firm has capacity constraints.
Product & services
• 11. The product mix is the product assortment
(everything the firm sells). Analysis of the attributes
of the mix helps the firm to determine its marketing
strategy and make decisions about its product lines.
▫ a. The following are the attributes:
 1) Width is the number of product lines.
 2) Length equals the total items in the mix.
 3) Depth equals the variants of each product.
 4) Consistency is the degree of the relationship of the
product lines, for example, as to uses by ultimate
consumers or choices of distribution channels. b. The
firm may grow by adding to any attribute of the product
mix.
Product & services
• 12. Services Marketing
▫ a. Services are intangible, so customers need tangible evidence
of their quality. Hence, customer experience engineering
determines the desired perception of that experience and then
develops performance and context clues that are consistent with
it. An experience blueprint is a visual representation of those
clues.
 1) Services usually are rendered and consumed at the same time.
Thus, the service provider-customer relationship is vital, and
preferred providers charge a higher price.
 2) Services vary greatly in quality. Accordingly, quality control
must be managed effectively by selective hiring, strong training
programs, standardizing the firm’s services, and researching
customer satisfaction.
 3) Services are perishable. Because they cannot be inventoried,
demand variability results in excess supply at nonpeak periods.
Product & services
▫ b. Service Marketing Strategies
 1) Three more Ps apply:
 a) People. The right employees, if well trained and
motivated, enhance customer satisfaction because
many services require substantial customer-employee
interaction.
 b) Physical evidence and presentation are what
the customer perceives, such as the decorative features
of a restaurant.
 c) Process. A process is how the service is performed,
for example, delivery of health care in a doctor’s office,
outpatient clinic, or hospital.
Product & services
 2) Service marketing involves external, internal, and
interactive marketing.
 a) External marketing (firm to customer) essentially
reflects the 4 Ps.
 b) Internal marketing (firm to employees) is the
effort expended to induce employees to interact
effectively with customers.
 c) Interactive marketing (employees to customers)
should have high functional as well as technical quality.
The customer not only should be well served but also
perceive that (s)he has been well served
Product & services
 3) Evaluation of services is difficult for customers.
Services tend to lack search qualities, or factors that can
be evaluated beforehand. Services usually have
experience qualities (factors that can be evaluated during
and after performance) and credence qualities (factors
that may be difficult to evaluate at any time).
▫ a) Consequently, service customers may be less reliant on
advertising than on testimonials by friends and users of the
service. Moreover, they may rely heavily on physical clues,
individual service providers, and prices to assess quality.
Finally, customer satisfaction may lead to strong customer
loyalty.
Product & services
 3) Evaluation of services is difficult for customers.
Services tend to lack search qualities, or factors that can
be evaluated beforehand. Services usually have
experience qualities (factors that can be evaluated during
and after performance) and credence qualities (factors
that may be difficult to evaluate at any time).
▫ a) Consequently, service customers may be less reliant on
advertising than on testimonials by friends and users of the
service. Moreover, they may rely heavily on physical clues,
individual service providers, and prices to assess quality.
Finally, customer satisfaction may lead to strong customer
loyalty.
Product & services
 4) Non price competitive differentiation is a major
issue for service firms. It may be achieved by
 a) Varying the offering by including secondary
service features with the primary service features.
Innovation should be continuous because these
features are readily imitated.
 b) Improving delivery through greater reliability,
resilience (e.g., coping with customer inquiries and
emergencies), and innovation.
 c) A superior image
Product & services
 5) Service quality should be managed so that perceived service is better
than expected service. Consequently, a firm must accurately determine
customer expectations and service standards, communicate the nature
and quality of the service to avoid distortion of expectations, and ensure
that employees perform at least at the level of a consistent set of
standards.
 a) Service quality is a function of
▫ i) Reliability of the service
▫ ii) Responsiveness (motivation of providers to give good service)
▫ iii) Assurance (capacity of providers to inspire confidence)
▫ iv) Empathy (a caring attitude exhibited by providers)
▫ v) Tangible factors (appearance of facilities, communications,
employees, etc.)
Product & services
 5) Service quality
 b) Profitable service firms tend to be customer driven and
therefore have a strategy for satisfying customer needs. They
also set high standards. Moreover, senior management is
committed to service quality. Still other characteristics of
these firms are use of self-service technologies (e.g., ATMs),
monitoring their own and competitors’ performance,
encouraging customers to register their complaints,
effectively resolving those complaints, and attending to
employee satisfaction.
Product & services
 6) Service firms may improve productivity by
 a) Hiring and training better employees
 b) Changing the quantity-quality tradeoff ratio
 c) Treating the performance of the service as a
manufacturing process
 d) Creating a product that reduces the need for a service
 e) Performing more substitute services (e.g., allowing a nurse
practitioner do some physician’s work)
 f) Giving customers reasons to provide labor (e.g., ATMs)
 g) Using technology effectively and efficiently
Product & services
 5) Service quality
 c. Non service firms, such as equipment makers, may still
need to provide product support services.
▫ 1) Customers are concerned about reliability, the rate of failure,
length of time the product will be out of service, service
dependability, and costs of maintenance and repair.
a) Thus, a buyer calculates the product’s life-cycle cost, not just
the purchase cost.
▫ 2) The firm should determine the services that are most
important (and their rank order) and consider all elements of the
value chain in developing new products. Proper design may
reduce customer support costs.
▫ 3) Firms may offer different product-service packages. For
example, different service contracts may have different effective
periods and deductibles.
Product & services
▫ C. Non service firms, such as equipment makers, may still
need to provide product support services.
 1) Customers are concerned about reliability, the rate of failure,
length of time the product will be out of service, service
dependability, and costs of maintenance and repair.
 a) Thus, a buyer calculates the product’s life-cycle cost, not
just the purchase cost.
 2) The firm should determine the services that are most
important (and their rank order) and consider all elements of
the value chain in developing new products. Proper design
may reduce customer support costs.
 3) Firms may offer different product-service packages. For
example, different service contracts may have different
effective periods and deductibles.
Product & services
▫ C. Non service firms
 4) Services may
 a) Be offered presale. They facilitate purchase and use
(e.g., finance, installation, or training) or augment
value (e.g., warranties).
 b) Be offered postsale, for example, by parts-and-

service departments, customer service departments, or
authorized distributors and dealers.However, a
customer that does its own servicing may negotiate for
lowerprices on the products it buys.
Product & services
 5) The following are trends in support services:
 a) Customers are more sophisticated. Such customers may
not desire bundled services.
 b) Equipment is more reliable and easier to repair.
 c) Service firms may now handle many different types of
equipment.
 d) Extended warranties have become less appealing as
reliability improves.
 e) Customer service competition is restraining price increases.
 f) Firms have improved their call handling.
Product & services
 5) The following are trends in support services:
 a) Customers are more sophisticated. Such customers may
not desire bundled services.
 b) Equipment is more reliable and easier to repair.
 c) Service firms may now handle many different types of
equipment.
 d) Extended warranties have become less appealing as
reliability improves.
 e) Customer service competition is restraining price increases.
 f) Firms have improved their call handling.
• Core concepts
Global Marketing Issues
• 1. Methods of Expanding into International Markets
▫ a. Licensing gives firms in foreign countries the right to produce
or market products or services within a geographical area for a
fee.
 1) Licensing a process, patent, trade secret, etc., is a way to gain a
foothold in a foreign market with little immediate risk. However, the
licensor may have insufficiency control over the licensee’s operations,
profits are lost if the arrangement succeeds, and the licensee
ultimately may become a competitor.
▫ b. Exporting is the sale of goods manufactured in one country
and then sold in other countries.
▫ c. In a local storage and sale arrangement, products
manufactured in one country are then shipped to a marketing
facility located in another country.
▫ D. Local component assembly involves shipping individual parts from
one country to an assembly facility in a second country. They are then turned
into a salable product and sold in the second country or exported to other
countries.
▫ e. In multiple or joint ventures, several firms, even competitors, work

together to create products that are sold under one or more brand names in
different countries. They share responsibility, ownership, costs, and profits.
▫ f. An indirect export strategy operates through intermediaries, such as

home-country merchants who buy and resell the product, home-country
agents who negotiate transactions with foreign buyers for a commission,
cooperatives that represent groups of sellers, and export-management firms
that receive fees for administering the firm’s export efforts. Indirect export
requires lower investment than direct export and is less risky because of the
intermediaries’ expertise.
▫ g. Direct investment has many advantages:
 (1) cheaper materials or labor,
 (2) receiptof investment incentives from the host government,
 (3) a strong relationship with interested parties in the host country,
 (4) control of the investment,
 (5) a better image in the host country, and
 (6) market access when domestic contest rules are in effect.
▫ However, direct investment is risky because of exposure to

currency fluctuations, expropriation, potentially high exit
barriers, and restraints on sending profits out of the country.
• Methods of Expanding into International Markets
▫ h. The internationalization process is of crucial interest to nations
that wish to encourage local firms to grow and to operate globally.
According to Swedish researchers, it involves the following steps:
 1) Lack of regular exports;
 2) Export via independent agents to a few markets, with later
expansion to more countries;
 3) Creation of sales subsidiaries in larger markets; and
 4) Establishment of plants in foreign countries.
▫ i. Attractiveness of a foreign market is a function of such factors as

geography, income, climate, population, and the product. Another major
factor is the unmet needs of a developing nation, for example, China or
India.
 1) Entry into a market abroad may be based on many factors, for
example, psychic proximity. Thus, a first-time venture abroad
might be in a market with a related culture, language, or laws.
• 2. Limited Entry. It has been suggested that firms emphasize the
triad markets (the U.S., Western Europe, and the Far East).
However, such an approach would have very adverse long-term
effects on the world economy. Nevertheless, a firm may decide to
enter only a few national markets.
▫ a. According to Ayal and Zif, the following are factors indicating
that few national markets should be entered:
 1) Entry costs are high;
 2) Market control costs are high;
 3) Product adaptation costs are high;
 4) Communication adaptation costs are high;
 5) The first countries selected have large populations, high income,
and a high rate of growth; and
 6) A dominant firm can erect high entry barriers.
• 3. Organizational Progression of Marketing in the International
Environment
▫ a. Export Division. This is the first step for an organization when it begins
selling products beyond its own borders. Generally, a firm’s initial entry is in
other markets that share a common language or similar cultural norms.
▫ b. International Division. Large corporations make this step before
becoming true global organizations. They generally focus their efforts in
certain geographical regions that are led either from a central structure or are
locally run and managed. Moreover, operating units report to the head of the
division, not to a CEO or executive committee. Operating units may be
geographical units, world product groups, or subsidiaries.
▫ c. Global Organization. All elements of the organization are geared
toward creating and selling products to a worldwide market. Thus, all
elements of the firm can be made to be more efficient in the global arena.
These elements include management, production facilities, and the
procurement of raw materials and components.
 1) Glocalization of a global organization localizes some of its elements but
standardizes other elements.
• 4. Strategies for Global Marketing Organization
▫ a. A multinational strategy adopts a portfolio approach. Its
emphasis is on national markets because the need for global
integration is not strong.
 1) The product is customized for each market and therefore incurs
higher production costs.
 2) Decision making is primarily local with a minimum of central
control.
 3) This strategy is most effective given large differences between
countries.
 4) Also, exchange rate risk is reduced when conducting business in
this manner.
▫ b. A global strategy regards the world as one market.
 1) The product is essentially the same in all countries.
 2) Central control of the production process is relatively strong.
 3) Faster product development and lower production cost are typical.
• 4. Strategies for Global Marketing Organization
▫ c. A glocal strategy combines some elements of local
responsiveness or adaptation with some elements of global
integration.
 1) Successful telecommunications firms are examples of
balancing these elements.
 2) Local responsiveness is indicated when local product
tastes and preferences, regulations, and barriers are
significant.
 3) Global integration is indicated when demand is
homogeneous and economies of productive scale are large.
• 5. Global vs. Transnational Firms
▫ a. Global firms are primarily managed from one central
country. Even though their products may be sold
throughout the globe, their headquarters and most of their
policy decisions are set from a central base of operations.
▫ b. Transnational firms lack a national identity. These
organizations rely on a decentralized structure for
management and decision-making. They tend to be more
attuned to local customs and market forces because they
take much more of their input from a local or regional
management team.
• 6. International Trade Practices
▫ a. Regional Free Trade Zones
 1) The European Union (EU) is a collection of 25 European
nations that have lowered trade barriers among member states
and share a common currency and trade policy.
 2) The North American Free Trade Agreement
(NAFTA) was created among the U.S., Mexico, and Canada.
NAFTA will likely be expanded into South American countries.
 3) MERCOSUL is a free-trade agreement among South
American nations. They include Argentina, Brazil, Uruguay,
and Paraguay. Chile and Bolivia are associate members.
 4) APEC (the Asian Pacific Economic Cooperation forum) is a
collection of 21Pacific-rim nations, including the NAFTA
countries, China, and Japan, dedicated to fostering increased
trade with each other and the rest of the world.
• 6. International Trade Practices
▫ a. Regional Free Trade Zones
 b. Cartels. A cartel is an organization of sellers (e.g., the oil
cartel OPEC) who undertake joint action to maximize
members’ profits by controlling the supply, and therefore the
price, of their product. Under the laws of many nations, such
collusive conduct is illegal when engaged in by firms subject to
those laws. The reason is that, as a result of the monopolistic
and anticompetitive practices of cartels, supply is lower, prices
are high, competition is restrained, and the relevant industry is
less efficient.
 c. Dumping. Dumping is an unfair trade practice that violates
international agreements. It occurs when a firm charges a price
 (1) lower than that in its home market or
 (2) lessthan the cost to make the product. Dumping may be
done to penetrate a market oras a result of export subsidies.
• 7. International Marketing Programs. Firms that operate globally
must choose a marketing program after considering the need for
adaptation to local circumstances. The possibilities lie on a continuum
from a purely standardized marketing mix to a purely adapted marketing
mix. The former chooses to standardize products, promotion, and
distribution. The latter adapts the elements of the mix to each local market.
Worldwide standardization of all elements should be the lowest cost
marketing strategy. However, even well established global brands
ordinarily undergo some adaptation to local markets.
▫ a. Product and Promotion
 1) Using a straight extension strategy, a higher profit potential exists
because virtually no changes are made in the product or its promotion. There is
a downside potential if foreign consumers are not familiar with this type of
product or do not readily accept it.
 2) Using a product adaptation strategy, a firm makes changes in the product
for each market but not in its promotion. This strategy can reduce profit
potential but may also provide a marketing advantage by considering local
wants and needs
 3) Using a product invention strategy, a new product is
created specifically for a certain country or regional market. A
product may either include advancements for developed
countries or have certain elements removed in places where a
lower cost is a key selling point. Backward invention is the
reintroduction o an earlier version of the product to meet local
needs. This variant of the invention strategy reflects the
possibility that different countries may be in different stages of
the international product life cycle. Forward invention
requires developing a new product for the unique needs of a
foreign market.
 4) Communication adaptation is a strategy that does not
change the products, but advertising and marketing campaigns
are changed to reflect the local culture and beliefs.
 5) A dual adaptation strategy changes both the product and
the promotion to provide the best chance of acceptance in a
foreign market.
▫ b. Price
 1) The gray market poses difficulties for a firm that sells products at
different prices in different countries. In a gray market, products
imported from one country to another are sold in a third country, or
even in the original exporters country, by persons trying to make a
profit from differences in retail prices.
 2) The price escalation problem requires setting different prices in
different countries. Price escalation is caused by an accumulation of
additional costs, e.g., currency fluctuations; transportation expenses;
profits earned by importers, wholesalers, and retailers; and import
duties. Three strategies address this issue:
 a) A firm may set a standard price globally. However, this
strategy may result in prices being unprofitable in some markets
and too high in others.
▫ b. Price
 2) The price escalation
 b) A firm may set a market-based price in each market.
The drawback of this strategy is that it ignores cost
differences. It also may create a gray market situation
between certain regions.
 c) A firm may set a cost-based price in each market with a
standard markup. In a region or country where costs are
high, this strategy may result in prices that are too high to be
competitive within the local market.
 3) A transfer price is the price charged by one subunit of a
firm to another. When the subsidiary-buyer is in a foreign
country, the higher the transfer price, the higher the potential
tariffs. However, the tax levied on a subsequent sale by the
subsidiary will be lower because of its higher acquisition cost.
▫ b. Price
▫ c. Distribution channels are a necessity to ensure goods are successfully
transferred from the production facility to end users. These channels include
three distinct links that must work smoothly together.
 1) The international marketing headquarters (export department or
international division) is where decisions are made with regard to the
subsequent channels and other aspects of the marketing mix.
 2) Channels between nations carry goods to foreign borders. They include
air, land, sea, or rail transportation channels. At this stage, in addition to
transportation methods, intermediaries are selected (e.g., agents or trading
companies), and financing and risk management decisions are reached.
 3) Channels within nations take the goods from the border or entry point to
the ultimate users of the products. Among nations, the number of the levels of
distribution, the types of channels, and the size of retailers vary substantially.
• 8. Steps to Brand Globally. The following steps should be taken
to minimize the risks of expanding into foreign markets and to
maximize growth potential:
▫ a. A firm must understand how diverse markets tie together to
form a global branding landscape. Individual countries vary
in their historical acceptance of products and services. However,
firms may also capitalize on similarities that are found in certain
areas and regions.
▫ b. Branding and brand-building must be a process. New markets
must be developed from a zero base. Global firms must build
awareness of the product and then create sources of brand
equity.
▫ c. Establishing a marketing infrastructure is crucial. To
create a successful marketing structure, the firm either must
merge with the local marketing channels or create a completely
new method of distribution.
• 8. Steps to Brand Globally.
▫ d. Integrated marketing communications should be developed.
Markets must be approached with a broad range of messages. Sole reliance
on advertising should be avoided. Other marketing communications include
merchandising, promotions, and sponsorship.
▫ e. The firm may create branding partnerships. Global firms often form
alliances with local distribution channels to increase their profitability while
decreasing their marketing costs.
▫ f. The firm should determine the ratio of standardization and
customization. Products that can be sold virtually unchanged throughout
several markets provide a greater profit opportunity for a global firm.
However, cultural differences may require extensive customization to appeal
to markets in different countries.
▫ g. The firm should determine the ratio of local to global control. Local
managers may understand the wants and needs of their market, but the
global firm must still retain control of certain elements of the marketing
process and strategy.
• 8. Steps to Brand Globally.
▫ h. The firm should establish local guidelines so the local
sales and profit goals are met.
▫ i. The firm should create a global brand equity tracking
system. This equity system is a set of research processes
that provide the marketers with pertinent information.
▫ The marketers can use this tracking system to create both
long- and short-term strategies for expanding product sales
and reach.
▫ j. The firm should maximize brand elements. Large
global firms can achieve much greater expansion rates when
the brand elements are successfully employed at the launch
of a product or service
• Core concepts
Pricing Decisions
• 1. Pricing is the element of the 4 Ps of marketing that generates
revenues, not costs. It is an important part of the marketing mix,
and pricing alternatives should be test marketed in the same way as
new products, packages, and advertising campaigns.
▫ a. The firm must determine its pricing objectives; estimate
demand at each price; estimate learning curves and costs for
different outputs; estimate costs of different marketing offers;
consider competitors’ actions (costs, prices, and offers); choose a
pricing strategy; and establish a price.
▫ b. Pricing objectives include profit maximization. Classical
economic theory assumes all firms always select the price that
results in the highest profit.
 1) An alternative objective is target margin maximization. This
objective is stated as a percentage ratio of profits to sales.
 2) Volume-oriented objectives set prices to meet target sales
volumes or market shares.
Pricing Decisions
• 1. Pricing is the element of the 4 Ps of marketing that generates
revenues, not costs. It is an important part of the marketing mix,
and pricing alternatives should be test marketed in the same way as
new products, packages, and advertising campaigns.
▫ a. The firm must determine its pricing objectives; estimate
demand at each price; estimate learning curves and costs for
different outputs; estimate costs of different marketing offers;
consider competitors’ actions (costs, prices, and offers); choose a
pricing strategy; and establish a price.
▫ b. Pricing objectives include profit maximization. Classical
economic theory assumes all firms always select the price that
results in the highest profit.
 1) An alternative objective is target margin maximization. This
objective is stated as a percentage ratio of profits to sales.
 2) Volume-oriented objectives set prices to meet target sales
volumes or market shares.

Other Marketing Topics

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Other Marketing Topics

Uploaded by

Copyright:

Available Formats

Other Marketing Topics

OTHER MARKETING TOPICS

▫ b. A service is “an act or performance” offered to

• 3. A product may be analyzed in terms of the customer

• 5. The relationships among products are described in the product

▫ e. Pruning is necessary when financial analysis

 b) Be offered postsale, for example, by parts-and-

▫ e. In multiple or joint ventures, several firms, even competitors, work

▫ f. An indirect export strategy operates through intermediaries, such as

▫ However, direct investment is risky because of exposure to

▫ i. Attractiveness of a foreign market is a function of such factors as

You might also like