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Product Strategies and Adaptations
Product Strategies, Product Adaptations, Pricing, Communication, LogisticsHello friends. Welcome to the class of International Business. So, we will start fromwhere we had left in the last lecture. In the last lecture we had started with internationalmarketing which is a part of again you know international business.So, although we are not going to go deep too deep into that, but at least we should have aslight idea. Because when you talk about international business, international finance,international marketing, international human resource and international supply chainthey all feature into that right.So, in the last lecture we discussed about, why international marketing is important andhow companies need to look into it? Then we talked about, how what is segmentationand how segmentation is important for a firm right? Why does a firm need to segmentthe market and then how it targets the market? And finally, we understood that aftersegmentation a company targets a few segments in the market and, because all targeting,all is not possible right.(Refer Slide Time: 01:24)Then we learnt about positioning. So, we said what is positioning basically? In the lastlecture when I had stopped I had said that positioning is a kind of differentiation which amarketer creates by placing the product in the mind of the consumer in a certain wayright.For example, let say there are so many toothpaste manufacturers in the country at themoment, but when I say Colgate or when I say show you the packet of Colgate right. Imay not write even the name Colgate into that, but then still you understand this is aColgate right. When you see the bottle of Coca Cola you understand it is a Coca Colaright.So, the point is when you talk about Coca Cola, there is immediately the freshness thatcomes to your mind right, a has sense of happiness or freshness. When I talk about Amulfor example, then a you know that a one the thing of you know nationality comes intoplay that is our own country’s product for example, right.When I talk about Colgate then although Colgate there is Procter and Gamble alsomanufacturing there is there are Anchor, there are many other companies manufacturingyou know toothpaste. But then when you talk about Colgate that protective you knowprotection that word protection comes into your mind right.So, the way the companies are positioning they want you to remember them by a certainmanner through a in a certain manner. So, that is what positioning is all about right. Andit becomes very important, because today different creating difference in the market is avery very big challenge right.If you cannot create this difference in the market then people will not be able to youknow figure out what to buy? And that might have a very negative effect on thecompany’s profitability and sales ok.(Refer Slide Time: 03:12)When you talk about international marketing. So, the product now which was national isgoing international right. So, that means, today if we are manufacturing something inIndia tomorrow we are trying to sell it in not only in India, but also in other countries.For example, the European countries or other Asian countries America wherever it isright. So, the product which is one of the most important the four P’s of marketing rightin the product mix.So, this becomes a very key challenge, because the point is what products you makemight. Is it going to be accepted in the other markets in the same manner or they mightnot be accepted? So, if they are not accepted what would you do? Would you like tochange the product or would you like to adapt to the local needs or you would not like todo that? So, that depends on the company’s goals and its objectives.For example, you see the word standardization which is saying developing the sameproduct for multiple countries. Now, if you can standardized. Standardization has a verypositive effect on the cost of manufacturing, because if we standardize a product that iswhy, there is a very famous statement made by Henry Ford which said that you maymake cars of any color you like, but they should all be in black. So, that says howimportant is standardization.So, when you standardize, the cost of production dramatically comes down ok. So, butthe problem is it that easy that you can standardize may not be right. So, although everymarketer wants to sell the same product in multiple countries, but it is not possible in allthe conditions. Consumer share some common goals, values, belief and consumptionpatterns.So, accordingly the product needs also changes. Now, as I said economies of scale andscope and the price competitiveness and uniform image is one important thing that isvery important for any marketer to look at. For example, look at the Hollywood movies.Today if Hollywood movies are selling in almost all countries they are being seen inalmost all countries.So, and. In fact, there are some movies which have which make more money than even aBollywood movie super hit movie right. So, that means what? Now, the product hasbecome acceptable in almost all the markets. So, the marketer does not need may notneed to change.Now, for example, you see. Suppose the language used is English and people would nothave understood it. Now, if you go to our Japanese market people might not watch themovie in the same language. They might have to change the language for them. So, butotherwise if you see a Hollywood movie is as good as is highly standardized right.Cosmetics Revlon cosmetics, Sony Television, Levi’s jeans Levi’s jeans. All these areexamples where the company has reached some amount of standardization.(Refer Slide Time: 06:06)Product adaptation: so, when you talk about international marketing adaptation is a verykeyword. Modifying the product to reflect characteristics of the market. What are theadvantage? Improved fit between the product and the consumer and expandedpenetration. So, you because of the. You have adapted the product with the local needs.So, it helps in penetration of the product in the market. Look at this example. It is a verypopular example given by almost all you know in almost lectures in marketing.McDonald’s in India offers Masala Grilled Veggie Burger, McAllo Tikki and McVeggie.All these have been customized according to the Indian needs right. There was verypopular you know cases in the past when Coco Cola came to India and IBM came toIndia. So, these companies were not accepted by the Indian government and they had togo back. There were different issues right.So, many a times even there was a case of Siemens. This would be a more fittingexample. When Siemens first time came to India they were in a shock, because theIndian they had just broughten that products as it is and they found that it was notworking well in the Indian conditions. So, they had to readapt or redesign the productaccording to the Indian you know electrical conditions, Indian climatic conditions andthen sell the product.(Refer Slide Time: 07:35)Mandatory Product Adoptions: So, some product adoptions are compulsory for firms.For example, government regulations. Now, why does the firm have to adopt itself right?So, there are government regulations.Now, safety issues in the automobile. Now, for example, now in some countries thesafety issue differs from country to country right. Some of the cars which are being soldin India, for example, would not get a permission in another market right. As it is if it istaken, because the safety level is very low right in some of the Indian cars.So, testing and labelling in food items. It is in some countries it is mandatory that youwrite down every details about the food items right. How it is being made? What are thedifferent ingredients in it? Everything. Warning on cigarettes is very important Indian asper the Indian government law you know condition.So, the regulations also have to be seen right. Technological considerations as I give theexample of Siemens. So, what is the voltage the infrastructure available in this country?Accordingly, the product has to be modified. Cultural imperatives- Is it acceptable to theconsumers? For example, when Kellogg’s came to India at the famous story and theywanted to sell their product he did not sell.The reason because the Indian habits of eating Corn Flakes is very different. Indians usewarm milk instead of cold milk, but if you use warm milk the crispiness of the CornFlakes goes away right.Similarly, when McDonalds came and they had a you know rift in the market, because ofthe beef right issue. And Indians are largely Hindu dominator country. So, there is a lotof people who do not eat beef or even they would you know even not talk about it. So, insuch condition the cultural impact was very significant.Economic considerations - in Peru, this is a case Unilever sells deodorants in aerosolcans right to the affluent customers rich customers and it sells cream sachets in smallcontainers to the low income ones.So, in India also the same thing happened. When in India many companies they did not.India at that time was not having a very. The Indians did not have a high buying powerright the purchasing power was not very high. So, in order to sell their products, themarketers came up with the concept of sachet right. So, shampoos came. So, people werenot able to buy a bottle. So, they would be given a one rupee two rupee sachet right.So, everything oil shampoos even toothpaste everything came in sachets and that is howthe entire market got revolutionized right. Measurement standards: length, weight,volume, the quantity right. All these have to be adapted as per the market. Now, onceyou have done with the product.(Refer Slide Time: 10:35)So, suppose the product is done and the product has been adapted to the according to thenew market. The next important thing that comes is next you know as we say product,price. So, Product Price, Place. So, these are the four P’s of marketing largely right.So, the next is the pricing complexity. So, you are selling in a domestic market. You hadthe local knowledge, but the point is now we are selling in different markets. So, not onlythe. Now, the product also has to be changed or if it is not changed also, there is a changein the currency, there is a change in the taxation rates that everything is changing.So, how should the pricing be? Pricing is maybe can be easily considered as the mostcomplex item when it comes to international business right or international marketing.Global pricing, it says is one of the most critical and complex issues in internationalmarketing right. It must be low enough to generate sales, but high enough to achieveprofit.So, if you make it too low and only to generate sales maybe you are living out on theprofit. If you make it very high to achieve higher profits people will not buy. So, the howprice sensitive are the people in this market? What is their buying power? The targetcustomers. Whom you are targeting? Who they are and how they are? It is veryimportant to understand.Price is the only marketing mix instrument that creates revenues that is very true right.All other elements they entail cost. For example, it is through the prize only that you aregenerating revenue. Product you to make a product the promotion all these are to sell theproduct and that is where you know you incur cost.A company’s global pricing policy may make or break its overseas expansion efforts ok.Multinationals also face the challenges of how to coordinate their pricing across differentcountries? So, some of the problems that they face we will see right.(Refer Slide Time: 12:27)So, what are the drivers of the foreign market pricing policies? When you are getting intoa foreign market, what are the drivers? What are the things you need to keep in mind?So, first of all it starts with simple the company’s goal. What is the goal of the company?So, accordingly the price might get affected. So, suppose the company’s goal is to makeminimum profit, but to stay for a long time or to make the maximum profit and to comeout of the market. So, what kind of a goal do they have? Is it like you know make upmake the profit as much as possible? It is a penetration strategy or a skimming strategy?Skimming is to make skim the profit make the profit as much as possible. Penetrationmeans to low the cost enter into the market stay for a long time and then compensate theprofits through your volumes. So, what is the goal of the company? What is the demandof the consumer?Is the customer demand high for the product or not? So, what is the kind of demand andhow sensitivity are they to price? What kind of competition is available in the marketwhich you have entered? For example, tomorrow we enter into the Nigerian market.Now, we do not know what kind of alternatives are available for the product. Forexample, for example, when companies came to India for example, in the you knowtoothpaste category. So, they found it surprising that Indians were never using toothpastein the past.They were using charcoal. They were using some kind of you know herbs, they werethey were using you know neem you know sticks. So, there were variety of things theywere using, but they were not using any you know company made product.So, at that time it was a challenge for them to even educate the people and change theirhabit from a natural thing to a company made thing. So, that was a big challenge to themarketers. And that time just imagine, what would be the pricing policy? Somebody isnever use the product and now you are asking him to use it for the first time.And if you charge high he will never ever buy your product may be may not be right.How is the distribution channel? What kind of distribution channel exists in the market?So, that also affects your pricing policy. What is the distribution channel? For example.What is the length of the channel? Is it. For example, in some countries the length of thechannel is very long. In some countries it is short.So, when it is short you do not tend to spend lot of money, but when it is a long channellike in Japan in India you spend lot of money on the channel right. Every member of thechannel has to be given some profit.Government policies: for example, when you talk about the policies healthcare policies.So, the government has now made certain changes. For example, in health care some ofthe pharmaceutical drugs and all they have been made very very cheap. So, that thepeople in the country will not suffer right. India we use the MRP system right.So, the retailers cannot cheat the customers, because we know in India the people are notwell educated. Till today, there is lot of uneducated people in India. So, in order to not tocheat them nobody could cheat them, the MRP has been in place.Market diversity: Now, very interesting tuna eyeballs. Now, this is you know the tunafish. There is a fish the eyeballs is you know if you to be sold in the U.S nobody wouldbuy it, but that is a delicacy in Japan and China.So, the diversity that the market also plays a role in the pricing right. So, this productwhen its delicacy. So, you can charge high, but suppose nobody is buying here. So,nobody would pay high amounts for this right.Country of origin stereotypes: now for example, from where does this product come?That also has an effect on the pricing. Now, if it is a Japanese you know or a. Let sayItalian French wine for example, they would cost. Automatically people will be ready topay high. If it is a Italian leather jacket people will be ready to pay high. If it is like a forexample, Japanese electronics people will be ready. So, the point is there is an brandassociated with the kind of products.So, accordingly the price can be changed. Then fluctuations in the currency. So, that alsohas a pricing impact on the pricing. So, every time when the currency value changes, it isbecoming appreciating or depreciating. Accordingly my cost also is changing. As mycost will change though that my price also might change right. Then, what are thedifferent cost factors the company has to look into? For example, how much howdiscount how much discount it has to provide to the customers?For example, India’s economy where people love bargaining right. So, in such acondition when they love bargaining, you have to offer some scope for bargainingotherwise they will not buy right. Deadlines, credit and payment terms, service. Whatkind of service do the people expect and to provide that service how much of revenuecost is attached? Training of the sales people. So, all these different factors also affect themarketing pricing policies.(Refer Slide Time: 17:34)Now, what is price discrimination? Let us see. Price discrimination exist wheneverconsumers in different countries are charged different prices for the same product or forslightly different variation of the product right.In a competitive market prices may have to be lower than in a market where the firm hasmonopoly right; obviously, when it is a monopoly it can charge anything. Example yousee, many auto mobile firms have long practiced price discrimination in Europe.A Ford Escort once cost 2000 dollar more in Germany than it did in Belgium. So,Germany it was costing more than in Belgium. This policy broke down when car dealersbought Escorts in Belgium and drove them to Germany. Where they sold them at a profitfor slightly less than Ford was selling Escorts in Germany.So, these practices are called price discrimination practices. But here, this gives anopportunity for smuggling or to business for businessman to take advantage right.Another issue that comes in pricing is the Predatory pricing. When you talk aboutinternational business and you move from one market to the other. So, this situationarises.(Refer Slide Time: 18:55)So, what is this predatory pricing? Predatory pricing is highly linked to dumping. Youmust have heard the word dumping right where a firm sells a product at a you know costin another market at a lower value in another market then what it sells in its homemarket; that means, in the home market it sells at a higher price and at another market ittends to sell at a lower cost.So, why does it do it? We will see. Predatory pricing is the use of price as a competitiveweapon to drive weaker competitors out of the national market. Once the competitorshave left the market, the firm then raise prices and enjoy high profits. There are twocases which I have brought. We will see both of them. One is a case where this is theDarlington bus wars case.Now, what happened here? Busways owned by Stagecoach July 1994, a new entrant intothe deregulated bus market, offered free bus travel to try and force the rival Darlingtonbus company out of business.So, this company Busways wanted the Darlington bus company to go out of business.Busways were also successful in attracting bus drivers from its rival by paying higherwages. For a time, they offered free bus rides attracting customers from their rivals. Theresult was that Darlington Transport Company DTC went out of business leading tomonopoly power for the remaining Busways company.So, this was a case where predatory pricing helped the company Busways to take overthe market. But let us say another case how the market reacted? This was a case in theearly 20th century. A German cartel; cartel means a group of people when they try to dosomething with a intention right.They would like to raise the price or lower the price, because in order to because. Whythey do it? It is a cartel it is a like unified way they do it. So, that the customers do nothave a choice to go to another market or another competitor, because everybody has nowbecome a group and this group is trying to behave in a unified manner.So, the customer is always at loss right. So, its anti competitive measure. So, Germancartel that control the European market for Bromine. Bromine is a chemical right. Anessential ingredient in many medicines as well as photography right. They dumpedBromine into the U.S the German cartel dumped bromine into the U.S.But after sometime Dow chemical a very large U.S firm exported competitively pricedbromine to Europe right. When they did it? The Germans this Germans they retaliatedselling bromine in the U.S at below their manufacturing cost. So, they did a predatorypricing or a dumping act. Dow chemicals did nothing, but responded by simply buyingthe bromine at the dumped price at the lower price and reselling it at profitably in Europeright.So, by offering higher you know discounts you know the incentives to the retailers andall. They rather capitalized on this which allowed the company to strengthen itsEuropean customer base at the expense of the German cartel. So, sometimes it goesagainst the firm also right.(Refer Slide Time: 22:17)Another important point which we discuss about international business is Transferpricing. Now, what is transfer pricing? Transfer pricing happens when the salestransactions is between related entities of the same companies right. It is used whenindividual entities of a larger multi entity firm are treated and measured a separately runentities. For example, let say Unilever India Unilever India and Unilever let say U.Kright.Now, they would be treated differently right. So, multinational companies what they do?They are treated separately, but what multinational companies do? They manipulate theycan manipulate. In fact, the transfer prices in order to shift the profits to low tax regions.So, this is a big issue let us see that this case with this example.For example, assume entity A which is in a high tax country right and entity B is in a lowtax country. So, both are let us say the two parts of a same company ABC. So, these aresubsidiaries of ABC only. So, A and B both are part of A ABC. So, A builds and sellswheels and entity B assembles and sells it as final product like the bicycle.So, entity A may sell wheels to entity B through an intra company transaction. So, this isa case of transfer pricing. If entity A offers entity B at a rate lower than the market valuewhat happens entity B will have a lower cost of goods sold and higher earnings than itotherwise would have, because now it is buying at a lower cost. So, the prices have comedown. So, they can easily enter into the market and they can sell their product.So, what are the barriers? As we discussed there are Cultural Barriers. We say culturalbarriers, source effect and noise levels. So, what they are? You see this exampleBenetton, Italian manufacturer ran into a cultural problem with its advertising.The company launched a worldwide advertising campaign with the theme “UnitedColors of Benetton” right, that had won awards in France. But when the same ad wastaken to U.S, there was a they were attacked by the U.S civil rights groups for promotingracial domination white racial domination. So, this is a cultural effect.(Refer Slide Time: 28:20)Similarly, there is a source and country of origin effect. For example, this example youcan see. Sometimes it has a very positive also sometimes it has a negative effect alsoright. French wine, Italian cloths and Germany luxury cars benefit from universalpositive source effect. This is an example. A wave of Japan bashing. When Japan was itssupremacy swept the United States in the early 90’s.So, worried that U.S consumers might view its product negatively. Honda responded bycreating ads that emphasize the U.S. content of its cars to show, how American thecompany had become in due course of time right.(Refer Slide Time: 29:00)Then, the next is noise level. What is noise level? Noise tends to reduce the probabilityof effective communication. It refers to the amount of other messages competing for apotential consumer attention. For example, if Colgate is there and there are ten differentcompanies also giving the ad in the same you know platform or channel.Then there is a lot of noise and people might not remember that particular companyright. In highly developed countries such as the United States already when there hasbeen lot of manufacturers and they who wants to draw the attention of the consumer, thenoise is extremely high right.(Refer Slide Time: 29:39)So, generally companies use either a push strategy or a pull strategy when they go intothe different markets. The same happens in the international business scenario right. So,a push strategy emphasizes personal selling rather than mass media advertising, this isthe push. So, they are pushing the product in the promotional mix. Although effective asa promotional tool personal selling requires intensive use of a sales force.On the other hand, a pull strategy is to create a advertising to communicate the marketingmessage to the potential consumers which will pull them towards the marketer. Finally,we talk about the advertising and culture right. And here we talk about how differentcultures and different advertising themes have different impacts?(Refer Slide Time: 30:26)For example, the cultural dimensions which Hofstede had given. So, they have an impacton how people react to a particular advertisements.(Refer Slide Time: 30:32)So, we have gone through this. For example, Power distance, Individualism, Masculinityand femininity, uncertainty. So, these are some of the different cultural traits. Andaccording to this different cultural traits the people react differently ok.For example, if power distance is low or high. So, how do you promote in such a place?How do you. Suppose in India, a ad is shown for example, where a senior citizen wouldbe treated you know like somebody just treats him like a equal a young man treats himlike a equal, some people might take it as an offence. Because in India the powerdistance is very high and seniors are given respect right.So, but that is nothing wrong or right. That argument is different. So, everything dependson what kind of culture the people have of that place have? The final thing that isimpacting the international business is in the international marketing is the globallogistics and distribution. Now, when I talk about global logistics and distribution, what Iam saying?(Refer Slide Time: 31:40)So, global logistics and distribution have played a critical role in the growth anddevelopment of trade in the integration of manufacturing on a world wide scale. So, asyou see as the firms operate on a global basis. Logistics manager need to manageshipping of raw materials, components and supplies among various manufacturing sitesat the most economical and reliable rates.So, how the global you know logistics and distribution affects the entire business right isalso very challenging. Because you see today when you think about buying a productwhich is not available in your local country for example.Now, if you want to buy it. Automatically then you have to shelve of you know the therehas to be it has to be available. So, how does the manufacturer who is let us say in Italyor Germany or Belgium Denmark wherever it is or Africa for that. How does it supply itto you? So, there has to be the supply chain system the mechanism has to be very robustotherwise it is very difficult to do it right.So, we will continue this one from the in the next lecture right. And because today wehave done enough it is becoming. So, the time is now coming to an end. So, we will stopit here. So, we will continue the logistics and distribution system in the next lecture right.So, I hope you have understood what we have discussed in the class and.Thank you very much.