Webster University Product and Brand Management Global Pricing

1. Webster University Product and Brand Management Global Pricing MRKT 5980

2. Global Product Development • The heart of the global marketing process that focuses on building adaptability into products to achieve worldwide appeal. • The product development process • The main goal is to build adaptability into products and product lines for worldwide appeal. • Step 1: Idea generation • Step 2: Screening • Step 3: Product/process development • Step 4: Scale up • Step 5: Commercialization Webster University MRKT 5980

3. Global Program Management SOURCE: Llkka A. Ronkainen, “Product Development in the Multinational Firm,” International Marketing Review I(Winter 1983):24-30. Initiator Affected Units(s) Managing Unit Viable Concept Yes No Initiator Becomes Managing Unit Does Initiator Have Resources? New Management Unit Assigned Unique Requirements to be Incorporated in Product Goals and Specifications Technical Development and Design Review of Design Activities to Plan, Develop, Manufacture, Introduce, and Support Product Activities to Plan, Develop, Manufacture, Introduce, and Support Product Nonoccurrence with Managing Unit Integration and Coordination of All Multinational Program Activities Guidelines for Program Execution Webster University MRKT 5980

4. The Location of R&D Activities • Past tendency was to keep activities centrally located with parent corporation headquarters. • Using foreign-based resources improves ability to compete successfully internationally. • Outsourcing shortens product development cycle time. • Determined by the existence of specific skills. Webster University MRKT 5980

5. Reasons for R&D Investments Abroad • To aid technology transfer from parent to subsidiary. • To develop new and improved products specifically for foreign markets. • To develop new products and processes for application in world markets of the firm. • To generate new technology. • Host governments see R&D centers as highly desirable investments. Webster University MRKT 5980

6. Global Product Development Organization • Product development team that is functionally and internationally representative. • Focus on customer input to identify universal and market-unique product features. • R&D consortia allows companies to cooperate in developing new products and technologies. Webster University MRKT 5980

7. The Testing of New Product Concepts • Testing for performance and customer acceptance is the final stage of product development. • Testing ranges from reliability tests to mini-launches. • Reasons that new international products fail: • Relying on instinct or hunch rather than testing and research. • Lack of product distinctiveness. • Unexpected technical problems. • Mismatch between functions. Webster University MRKT 5980

8. International Product Testing Techniques • Limited product launch in one country market. • Laboratory test markets to capture consumer reactions in a controlled environment. • Microtest marketing uses a permanent panel of consumers and assesses their willingness to buy after exposure to media and purchase incentives. • Forced distribution tests rely on the continuous report of consumer reactions to new products already in the market. Webster University MRKT 5980

9. The Global Product Launch • Introducing the product into countries in three or more regions within a narrow timeframe. • Successful launches require: • Involvement of country managers • Pre-launch attention to localization and translation requirements • Increased education and support of the sales channel • Benefits of a global launch • Showcases the product • Removes old models at once • Captures new product’s higher margins Webster University MRKT 5980

10. Product and Brand Portfolio Management • The marketer must have a balance of new, growing, and mature products capable of creating sustainable competitive advantage in the firm’s efforts to expand geographically or add to existing market operations. • Analyzing the product portfolio • Market rates • Market positions Webster University MRKT 5980

11. Example of a Product-Market Portfolio 40 40 B B B S J S F F GB GB D D 10 10 Market Growth C US US C 0 0 10 1 0 10 1 0 Relative Market Share Relative Market Share Company A Company B (B=Brazil, C=Canada, D=Germany, F=France, GB=Great Britain, J=Japan, S=Spain, US=United States) SOURCE: Adapted from Jean-Claude Larreche, “The International Product-Market Portfolio,” in 1978 AMA Educators’ Proceedings (Chicago:American Marketing Association, 1978), 276 Webster University MRKT 5980

12. Market-Product-Business Portfolio Example Canned Tea-US Canned Tea-Asia High Ice Cream-US Canned Tea-Europe Market Attractiveness Frozen Main Dishes-Europe Ice Cream-Asia Ice Cream-Europe Frozen Vegetables-Europe Frozen Vegetables-US Low Low Competitive Strength High ——— Market and Distribution Interconnectedness………. Technology and Production Interconnectedness SOURCE: Adapted from Susan P. Douglas and Samuel Craig, “Global Portfolio Planning and Market Interconnectedness,” Journal of International Marketing 4 (no.I, 1996):93-110. Webster University MRKT 5980

13. ADVANTAGES A global view of competitive structures. Global strategy based on allocation of scarce resources. Marketing objectives based on product lines in markets served . A convenient visual communication goal. DISADVANTAGES Foreign competition does not follow the same rules as domestic competition. Relationships between market share and profitability may vary. Government regulations. Local content laws. Different production sites impact perceptions of risk and quality. Product Portfolio Approach Webster University MRKT 5980

14. Managing the Brand Portfolio • A strong brand is a global marketing asset. • Co-branding • A strategic alliance where two or more brands are combined in an offer. • Brand strategy decisions • Use of the corporate name. • Family brands for a wide product line. • Individual brands for each item in the product line. • Private (store) branding • Umbrella branding with the intermediary’s name. • Separate brand names. Webster University MRKT 5980

15. Nestle’s Branding Tree Examples 7,500 Local Brands Responsibility of local markets • Texicana • Brigadeiro • Rocky • Soils 140 Regional Strategic Brands Responsibility of strategic business unit and regional management • Macintosh • Vittel • Contadina • Stouffer’s • Herta • Alpo • Findus 45 Worldwide Strategic Brands Responsibility of general management at strategic business unit level • Kit Kat • Polo • Cerelac • Baci • Mighty Dog • Smarties • After Eight • Coffee-Mate 10 Worldwide Corporate Brands • Nestle • Carnation • Buitoni • Maggi • Perrier • L’Oreal SOURCE: Adapted from Andrew J. Parsons,”Nestle: The Visions of Local Managers,”The McKinsey Quarterly, no 2, 1996, 5-29;see also http://www.nestle.com; http://brand/index.asp. Webster University MRKT 5980

16. Private Brand Strategy SOURCES:Adapted from Sabine Bonnot, Emma Carr and Michael J. Reyner, “Fighting Brawn with Brain,” The McKinsy Quarterly 40 (no 2. 2000): 85-92; and Francois Glemet and Rafael Mira, “The Brand Leader’s Dilemma,” The Mckinsey Quarterly 33 (no 2. 1993):4. Webster University MRKT 5980

17. Global Pricing Strategies

18. Objectives of Transfer Pricing • Competitiveness in the international marketplace. • Reduction of taxes and tariffs. • Management of cash flows. • Minimization of foreign exchange risks. • Avoidance of conflicts with home and host governments over tax issues and repatriation of profits. • Internal concerns - goal congruence or subsidiary manager motivation. Webster University MRKT 5980

19. Influences on Transfer Pricing Decisions • Market conditions in target countries • Competition in target countries • Corporate taxes at home and target countries • Economic conditions in target countries • Import restrictions • Customs duties • Price controls • Exchange controls • Reasonable profit for foreign affiliates Webster University MRKT 5980

20. Corporate Use of Transfer Prices • Three philosophies of transfer pricing are used to achieve corporate objectives • Cost-based: direct or cost-plus (most used) • Market-based: discounted “dealer” pricing • Arm’s-length: same pricing as for unrelated parties • Transfer pricing and environmental influences • Attempts to minimize tax liability of subsidiaries in high income tax countries and report profits in lowest tax rate jurisdictions may coincidentally increase other import taxes and duties. Webster University MRKT 5980

21. Transfer Pricing Challenges • Internal and external problems for the multinational corporation • Performance Measurement • The clouding effect of manipulating intra-corporate prices on a subsidiary’s apparent and actual profit performance. • Difficulty in maintaining relationships with subsidiaries that are negatively impacted by transfer pricing. • Taxation • Tax and regulatory jurisdictions contribute to and compound transfer pricing problems. Pricing that is justified and reasonable in the home country may not be perceived as such in the host country. Webster University MRKT 5980

22. Taxation • Section 482 of the Internal Revenue Code recognizes four methods to determine arm’s length pricing: • The comparable uncontrolled price method • The resale price method • The cost-plus method • Any other reasonable method Webster University MRKT 5980

23. Arm’s Length Pricing Methods • The comparable uncontrolled price method • MNC member sales made to unrelated parties • MNC member purchases from unrelated parties • Sales between unrelated parties • The resale method • Pricing determined by subtracting the subsidiary’s profit from uncontrolled selling price. • The cost-plus method • Pricing determined by consistently adding a profit markup to the internal seller’s total product cost. • Any other reasonable method • Typically the functional analysis approach of comparing the proportional contributions is used. Webster University MRKT 5980

24. Pricing Within Individual Markets Determined by: • Corporate objectives • Costs • Customer behavior and market conditions • Market structure • Environmental constraints Webster University MRKT 5980

25. Pricing Within Individual Markets • Corporate Objectives • Profitability (ROI) and competitiveness in the market (market share) • Market situation pricing • Skimming • Penetration • Product line positioning • Premium and mass markets • Costs • Resource input costs are a frequently used basis of pricing determinations • procurement, manufacturing, logistics, marketing costs Webster University MRKT 5980

26. Pricing Within Individual Markets • Demand and Market Factors • The price elasticity of consumer demand strongly affects pricing in markets. • Customer perceptions of product offerings and marketing communications. • Cooperation and strength of intermediaries. • Market Structure and Competition • Other competitors in the market affect and limit the strategic responses of marketers to changing market conditions. Webster University MRKT 5980

27. Pricing Within Individual Markets • Environmental Constraints • Governments policy measures (taxes and tariffs) and price controls influence prices and pricing levels directly. Price controls require marketers to operate as if in regulated industries. • Arguments Against Price Controls • The maximum price becomes the minimum price. • In a wage-price spiral, labor turns against restrictions as wage increases are forestalled. • Government controls are difficult to enforce and less tax is raised because less money is made. • Governments may need to bail out companies to prevent bankruptcies and unemployment. Webster University MRKT 5980

28. Pricing Coordination • Standard worldwide pricing is influenced by: • The need for pricing latitude by subsidiaries faced with localized market conditions. • The large absolute and relative size differences of international markets. • The effect of arbitrage practices in closely located markets is reduced due to the physical distances between many markets. • Parallel imports will surface in markets where price discrepancies exist, regardless of distances. Webster University MRKT 5980

29. The Euro and Marketing Strategy • Launch of the Euro • became one and only currency or 12 European nations as of January 1, 2002. • requires firms to reexamine business positioning. • will push national markets closer with single currency and single cross-border price. • Marketing strategy changes • prices become transparent and require stronger. promotions and education of products to consumers • aim to lower prices as slowly as possible. • price differences reflect quality and service differences. Webster University MRKT 5980

30. Countertrade • More than goods, services, or ideas are exchanged in a sale • A type of barter arrangement • More beneficial to some countries than financial exchange transactions alone • Mechanism for firms to gain entry into new markets • Long-term sales stability • Opens market for uncompetitive goods • E-commerce may help develop online global barter economy to increase benefits of Countertrade Webster University MRKT 5980

31. Types of Countertrade • Counterpurchase or parallel barter • two separate contracts and may include cash • allows for imbalance in value of goods exchanged • Buypack or compensation arrangement • supply of technology/equipment to produce goods sold with supplies brand for repayment • Clearing arrangements • clearing accounts established deposit/withdraw of countertrade activities - including switch-trading • Offset • coproduction, licenses production, subcontracting, technology transfer, overseas investment Webster University MRKT 5980