CM MKT Plan

Country Manager Assignment #3 Guidelines Directions: - Develop a strategic marketing plan for your companys operations Write plan
n for perspective of current period being worked on Provide some historical perspective on decisions made by group Write in a forward-looking manner` o Give insight into the future strategies & goals of company Max. 25-pages (double-spaced); in addition to any charts/exhibits Focus on charts with data that resulted in successful firm decisions o For instance, forecasts of firms future success in meeting objectives Sample Structure Historical Perspective on Firms Observations Historical perspective on firms operations (highlight successes) Choice of markets entered, and future plans (brief; assignment #1)
Markets Entered Argentina Brazil Chile Entered in Period 5 Entered in Period 3 Entered in Period 1
I.
Available Markets Mexico, Peru, Venezuela
Brazil You currently have 15 SKUs selected, and 2 active ad campaigns.
II.
Marketing plan
1) TARGET MARKETS a. Similar across markets served (vs. different) b. Process for choosing key segments
i. Critical bases of segmentation to firm ii. What led to choose specific segments c. Any difficulties encountered to date with respect to specific target markets and how you have responded 2) MARKETING OBJECTIVES (PAST & FUTURE) 3) PRODUCT STRATEGY 4) OPERATIONS STRATEGY 5) PROMOTION STRATEGY 6) DISTRIBUTION
Production in Brazil: 410 million units
Argentina Decisions Sales Forecast 3.6 1.9 1.7 3.2 5.5 4.3 3.6 7.8 9.5 3.5 4.2 2.9 5.7 3.3 3.9 Budget (mill.) 8.0 10.0
SKU Economy/Medium/Tube/Paste Economy/Large/Tube/Paste Economy/Large/Tube/Gel White/Small/Tube/Paste White/Medium/Tube/Paste White/Medium/Tube/Gel White/Medium/Pump/Gel Healthy/Medium/Tube/Paste Healthy/Medium/Tube/Gel Healthy/Medium/Pump/Gel Healthy/Large/Pump/Gel Kids/Small/Tube/Paste Kids/Medium/Tube/Paste Kids/Medium/Pump/Gel Kids/Large/Pump/Gel
MSRP 9.00 10.44 10.44 8.34 9.74 9.74 9.90 8.34 8.34 9.90 10.43 6.96 8.34 9.90 11.13
Allow. 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Adapt. (000's) n/a n/a
Campaigns for Allsmile Families/Economy/Spanish/Argentina/1 yrs old Families/White/Spanish/Argentina/1 yrs old Channel Total Exp. (mill.) Traditional Self Serve Distribute? No Yes Sales People ARS4.1 0 3
Promote? ARS50.0 Yes
Hypermarket Web/Other Home Wholesale
Yes No Yes
6 0 3
Yes Yes
Allocate promotion based on Total Channel Sales Primary production in Brazil
Brazil Decisions Sales Forecast 12.3 8.2 8.7 14.3 13.5 14.5 7.8 18.9 27.6 23.0 13.4 11.3 11.9 12.4 11.3 Budget (mill.) 10.0 10.0 Promote? BRL25.0
SKU Economy/Medium/Tube/Paste Economy/Large/Tube/Paste Economy/Large/Tube/Gel White/Small/Tube/Paste White/Medium/Tube/Paste White/Medium/Tube/Gel White/Medium/Pump/Gel Healthy/Small/Tube/Paste Healthy/Medium/Tube/Paste Healthy/Medium/Tube/Gel Healthy/Medium/Pump/Gel Healthy/Large/Pump/Gel Kids/Small/Tube/Paste Kids/Medium/Tube/Paste Kids/Medium/Pump/Gel
MSRP 3.57 4.12 4.12 3.30 3.85 3.85 4.40 2.74 3.30 3.30 3.57 4.12 2.75 3.30 3.57
Allow. 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Adapt. (000's) n/a n/a
Campaigns for Allsmile Families/White/Portuguese/Brazil/3 yrs old Younger/Healthy/Portuguese/Brazil/6 yrs old Channel Total Exp. (mill.) Traditional Self Serve Hypermarket Web/Other Home Wholesale Distribute? No No Yes Yes No Sales People BRL3.3 0 0 18 3 0
Yes Yes
Allocate promotion based on Last Year's Sales Primary production in Brazil
Chile Decisions SKU MSRP Allow. Sales
Forecast Economy/Medium/Tube/Paste White/Small/Tube/Paste White/Medium/Tube/Paste White/Medium/Tube/Gel White/Medium/Pump/Gel Healthy/Small/Tube/Paste Healthy/Medium/Tube/Paste Healthy/Medium/Tube/Gel Healthy/Medium/Pump/Gel Kids/Small/Tube/Paste Kids/Medium/Tube/Paste Kids/Medium/Pump/Gel 730 700 800 800 835 700 800 800 850 650 750 815 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Adapt. (000's) n/a Sales People CLP462.6 0 0 6 0 6 1.2 0.9 3.0 2.7 0.9 1.5 4.8 3.8 1.2 1.5 3.3 0.9 Budget (mill.) 100.0 Promote? CLP600.0
Campaigns for Allsmile Families/Economy/Spanish/Chile/6 yrs old Channel Total Exp. (mill.) Traditional Self Serve Hypermarket Web/Other Home Wholesale Distribute? No No Yes No Yes
Yes Yes
Allocate promotion based on Last Year's Sales Primary production in Brazil
Price Position Must have 4 SKUs for this factor to be calculated. Basically checks the pricing vs. expected pricing in the market. Is the firms pricing consistent across SKUs? This factor makes sure that large tubes are more than medium, that multiingredient formulations are more than economy, etc. Note that you do not even receive a score until you have 4 SKUs. Tips for improving price position score: The key here is that if you have an SKU that offers more benefits than another SKU (bigger, more ingredients) you should be charging more for it than formulations with fewer benefits. Sales Leadership Your relative market share x 100 with max of 100. This is a global measure based on your market share. Tips for improving sales leader score: As a broader measure there is no easy way to quickly improve this score. Rather, it is based on following an effective long-term
strategy of offering good products to attractive segments and making sure the product is available in appropriate channels of distribution. Share of Mind A combination of your relative awareness vs. the leading awareness in a category as well as absolute awareness. 50% of the factor is relative, 50% is absolute. Weightings by category are weighted based on category demand (economy, whitener, etc.).
1) Pricing Set product price to meet local market conditions yet maintain multi-country pricing consistency, while pricing for profitability. Be aware of the impact of large across-market price differences. Market Entry/Exit Decision - Period 10 Markets Entered Argentina Entered in Period 5 Brazil Entered in Period 3 Chile Entered in Period 1 Available Markets Mexico, Peru, Venezuela Chile You currently have 12 SKUs selected, and 1 active ad campaign. Adf
7. PRICING Price Position Must have 4 SKUs for this factor to be calculated. Basically checks the pricing vs. expected pricing in the market. Is the firms pricing consistent across SKUs? This factor makes sure that large tubes are more than medium, that multiingredient formulations are more than economy, etc. Note that you do not even receive a score until you have 4 SKUs.
Tips for improving price position score: The key here is that if you have an SKU that offers more benefits than another SKU (bigger, more ingredients) you should be charging more for it than formulations with fewer benefits. ONLINE EXAMPLE The Country Manager CaseFinal Assignment Groups of 3-5 students experience market entry and expansion as a category manager for Allstar Brands, a major consumer products company. The U.S. market has matured, and Latin America has been identified as having the best potential for future growth. The tooth-paste brand management team must decide which of six countries is the most attractive for their Allsmile brand and then how to expand their presence throughout the region. Local or regional strategies can be developed; and implemented using customized and/or standardized marketing programs. Countries being considered for expansion include Argentina, Brazil, Chile, Mexico, Peru, and Venezuela. All economic and cultural data are periodically updated to keep the simulation fresh and current Decisions in Country Manager include: Market Entry: Which countries to enter and in what sequence. STP: Choice of segmentation, target market(s), brand positioning objectives. Distribution: Choice of channel partners and promotional support. Pricing: MSRP by SKU in local currency, channel discount and slotting allowances. Advertising: Budget, theme, and cultural / language adaptation considerations. Product: Choice of SKUs, including consideration of localized vs. standardized strategy. Manufacturing Location: Import or local production facilities and choice of country for plant (manufacturing and transportation cost, tariff issues). Student performance can be compared on a number of metrics including a brand equity index, standard marketing success measures, as well as an instructorweighted balanced scorecard. All Interpretive simulations include a presimulation quiz and peer review. Historical Perspective on Firms Observations Target Markets Market Entry: Develop a regional strategy by evaluating country attractiveness and market potential. Decide which markets to enter, along with the order and time of entry. Marketing Objectives (Past and Future) Type and Mode of Entry: Local production versus exporting; distribution through a company sales organization versus indirect wholesalers; managing types and modes of distribution over time. Product Strategy Segmentation, Targeting, and Positioning: Determine consumer segments to
target and decide how to best position brands for the chosen segments. Operations Strategy Product Management: Choose appropriate (Global product, adapted product, or local product) for a market from an existing set. Promotional Advertising Strategy Use standardized home country advertising, or develop local campaigns (cost and customer tradeoffs). Allocate budget funds across advertising and other promotional expenditures. Consider the use of different advertising and promotional objectives across markets. Distribution In addition to the issues raised above, decisions will be made about the allocation of sales force to specific channels; some rely on sales force more than others. Pricing Set product price to meet local market conditions yet maintain multi-country pricing consistency, while pricing for profitability. Be aware of the impact of large across-market price differences.
CMMARKET ATTRACTIVENESS ASSESSMENT (P. 2)
Introduction:
Your first big decision in CountryManager is which 2nd market to enter first. The market you select should meet 2 criteria: (1) enable you to establish a profitable business in the country, and (2) provide the base for subsequent regional expansion.
Goals:
1). Better understanding of six (6) Latin American markets (5Cs):
a. Target consumer segments b. Current and potential competition c. Economic Risk
2). Begin to consider the inter-relationship of markets; potential impact on your strategy:
a. Role of tariffs, special agreements, and shipping b. Standardization v. customization strategies c. Costs of production
What Youll Need

CountryManager manual and simulation: Reference section 1 CountryManager Case; section 4 Selecting and Entering Foreign Markets; Appendices 1 and 2, all). Market Attractiveness Excel Spreadsheet (available in your simulation software)
Deliverables (what to include in word document, i.e., answers):

1) Printout of results from MKT Attractive Sheet (or similar analysis: numerical or written) 2) Rationale for criteria & weights 3) Country your group will enter 1ST & the target market(s) within that country 4) Initial thoughts about next steps in regional expansion 5) The 2nd country to enter 6) Probable location of plant, and 7) The rationale for these steps in expansion
INTERNATIONAL MARKETING, PRICING (definition): Pricing is generally described as one of the most critical issues that managers face. In a 1995 survey of US and European managers polled from a broad range of industries found that pricing was rated as the marketing issue with the highest problem pressure. The role of price in the firm's marketing mix is two-fold. First, PRICE IS THE ONLY MARKETING MIX INSTRUMENT THAT CREATES REVENUES FOR THE FIRM. Pricing decisions will have an immediate impact on the company's sales revenues and bottom line. Second, price also signals to the market the company's intended value positioning for the product or service being sold. At the same time, some scholars suggest that the significance of pricing has most likely increased over the years due to a multitude of factors, including inflation, intensified competition, market saturation, and rising consumerism.
For multinational companies (MNCs) the complexities of the global environment render price-setting policies an even more bewildering endeavor. Yet, in spite of its claimed managerial relevance, international pricing has received remarkably little research interest relative to other marketing mix instruments. One review of international marketing research covering the 1980s found that merely 14 (1.5%) out of the 893 studies reviewed dealt with pricing (Aulakh and Kotabe 1993). Most of these international pricing studies related to transfer pricing issues. Not surprisingly, the difficulty in obtaining company information on pricing decisions is seen as a major hurdle for doing empirical research in the area (Aulakh and Kotabe 1993). This chapter gives an overview of the current state of affairs of research on global pricing. At the end of the chapter we map out a research agenda on global pricing. We first review academic research on the international prices setting process. One very potent force is the market environment. We consider how culture affects consumers' processing of price-related information. Another crucial market force is the local competitive environment. We explore how differences in the competitive environment (e.g., between local companies and multinational companies) affect price-setting decisions. The third critical driver that we look at is currency exchange rate fluctuations and coupled to thisexchange rate pass-through practices. Just as with other marketing mix instruments, global marketers face two countervailing forces when setting international prices: price customization drivers and price harmonization drivers. Basic economics doctrine dictates that companies should maximize their profits through price discrimination. For many products, one can indeed observe huge price differentials across countries (see Table 18.1). The main challenge, however, triggered by cross-country price gaps, is that price differentials often create arbitrage opportunities that possibly lead to gray market (parallel imports) situations. The final section of this chapter highlights research insights on coping with gray market challenges.
Market Entry/Exit Decision - Period 10 Markets Entered Argentina Entered in Period 5 Brazil Entered in Period 3 Chile Entered in Period 1 Available Markets Mexico, Peru, Venezuela Chile You currently have 12 SKUs selected, and 1 active ad campaign.
Sample Structure III. Historical Perspective on Firms Observations Historical perspective on firms operations (highlight successes) Choice of markets entered, and future plans (brief; assignment #1)
IV.
Marketing plan
7) TARGET MARKETS a. Similar across markets served (vs. different) b. Process for choosing key segments i. Critical bases of segmentation to firm ii. What led to choose specific segments c. Any difficulties encountered to date with respect to specific target markets and how you have responded Sample Structure
V. Historical Perspective on Firms Observations Historical perspective on firms operations (highlight successes) Choice of markets entered, and future plans (brief; assignment #1) Markets Entered Argentina Entered in Period 5 Brazil Chile Entered in Period 3 Entered in Period 1
Brazil You currently have 15 SKUs selected, and 2 active ad campaigns. Appendix 1. Table of Latin Americas Weighted Criteria GDP/Capita Fresh Water Inflation Rate Urbanization Unemployment Rate 20% 18% 15% 14% 7%
Infant Mortality Rate (standard of living) 6% Unemployment Rate Population Below Poverty Line Population Size Age Structure 7% 5% 5% 3%
ACTUAL MARKETING PLAN (HANDED IN)

Section 1 and 2 Target Markets Brazil Our target market in Brazil proved to be families and adults. Even though it was not originally part of our marketing plan, our team decided to enter Brazil in the third period, because population size was a much larger factor than we anticipated. The age structure of Brazil was 26.7% aged 0-14, 66.8% aged 15-64, and 6.4% aged 65 years and over. Because the population was largely skewed in the 15-64-age range, we chose a diversified selection of SKUs geared towards adults and only two for children. Our initial period in Brazil proved to be a much greater success than the first market we entered, Chile, so we added more SKUs in the fourth period. Healthy medium sized toothpaste proved to be the best selling product as the periods progressed. This seems to be consistent with our age structure that adults aged 15-64 was are target market. However, children made up a portion of our target market as well. Argentina In the fifth period, we entered the Argentinean market. The age structure was very similar to Brazil, largely skewed to 15-64-age range. Because of this, we chose a similar variety of SKUs, from economy small tube paste to kids large pump gel. Our first period in Brazil proved that healthy medium tube gel was the most successful SKU with 7.9 million units sold. As the periods progressed, our team found that the medium and large SKU sizes sold much better than the small sizes. Adjusting our SKUs to medium and large options, our SKUs sold very well from economy, white, healthy, and kids.
Because medium and large SKUs sold much better than small, our firm assumed that many people were purchasing toothpaste for more people than just themselves. Therefore, our target market in Argentina was families as well, incorporating adults and children. Chile The first market our firm entered as well as the most difficult to penetrate, our target market in Chile was families. In the first period, we chose a variety of SKUs from economy small to kids medium. With a small margin of sales in the first period, childrens target market was the most successful. In this small market, we did not find the drastic difference in goods sold between small, medium, and large, SKUs. Because of this, we kept a variety of SKUs throughout the entire simulation from white small tube paste to kids medium pump gel. Chile turned a very low amount of profit throughout the simulation. As a very tough market to penetrate, we adjusted our target market plan in Chile as the periods progressed. In Brazil and Argentina, the number of different SKUs increased as we continued the simulation, but in Chile we kept the same amount in order to not lose profits. Because we wanted to keep Enjoy as a large presence in South America, we did not withdraw from the Chilean market. However if the simulation continued in the future, we would eventually plan to withdraw from Chile.
Similarities and Differences Across Markets Across all three markets, Brazil and Argentina were the most similar and Chile was an outlier. Even though Brazil sold almost three times the amount of goods as Argentina, the target markets continued to be families, with medium and large SKUs performing the best consistently in every period. Chile was a little more unpredictable, with the childrens market doing best in some periods and adults in others. To
demonstrate inconsistency for example, in the third period kids medium tube paste sold 5.3 million units and in the ninth period sold 3.3 million units. Because the highest number of units sold during any period for on SKU was 6.0, this is a very large margin change for this market. The unpredictability of Chile as well as its low population caused it to be a large problem for our firm.
Marketing Objectives (Past and Future) Sales Objectives Chile Our past sales objectives in Chile were much more ambitious than our firm anticipated. Initially, we believed that the country had great promise because it ranked very high on our outlined criteria: Gross Domestic Product Per Capita (GDP), Fresh Water Withdrawal Per Capita, and inflation rate. Because Chile had such a high GDP, we believed that the country had a high standard of living and would be concerned with dental health. Because of this, our projected sales objectives were much higher.
However with a population of just sixteen million, our actual sales make much more sense. In the eighth period our company sold 24.5 million units. This number is not enough for our company to turn enough of a profit even though it is reasonable for Chiles small population. In the future we plan to scale back sales as we expand into other South American markets until we phase out our market in Chile completely. Brazil Because of Brazils large population of almost 200 million, our firm believed that entering this market during the third period would save Enjoy from the poor performance we saw in Chile. Our projected sales each period were about 50% of the population, 100 million. However, our expectations were exceeded with 207 million units sold in the eighth period. We anticipate that as our brand equity grows, we will gain more market share and increase our units sold. Brazil is our strongest market at this time.
Argentina With a population of 41 million, our anticipated sales objective was 50% of the population, 20 million each period. Our expectations were exceeded in Argentina. During the ninth period, our company was selling 64.6 million units. For the countrys population size, the unit of goods sold was very good. In the future, we project that the units sold will increase as we gain market share in Argentina. Profit Objectives Chile Our past profit objectives were to increase our gross margin into a positive percentage. During the second period, our unit sales were only 29.4 units and our gross margin was 57.8%. Because of the small amount of good sold, the shipping and tariff costs as well as cost of goods sold far outweighed any profits made. To adjust this, we increased our prices and built a factory in Brazil to greatly reduce our shipping and tariff costs. In the ninth period, our gross margin was 6,100 CLP. We hope to continue to make a positive gross margin in the future until we withdraw from the Chilean market. Brazil Our past profit objectives in Brazil were again to create a positive gross margin. When first entering Brazil, we made 54.5 million BRL. However similar to Chile, shipping and tariff costs placed us in a negative gross margin of -2.5%. Since then our profit has grown exponentially. In the ninth period, our gross margin was 268.5 million BRL. Enjoy anticipates that our profits will continue to grow as we gain market share in Brazil. Because of our success thus far, Brazil appears to be our most promising market. Argentina Wanting to create a positive gross margin in Argentina. We have made a great deal of progress in Argentina since entering their market in the fifth period. In the tenth period, we actually contributed a Net Contribution of 126.7 million ARS. Our gross
margin ni this period was 231.5 million. This is a drastic increase from the first period. Our team made a gross margn of 84.4 million ARS, however our Net Contribution was 138.4. This is attributed to our expensive marketing plan at the beginning in order to raise brand awareness. In addition, we did not have enough production capacity for our factory, which forced us to import our product from the United States. By the tenth period, we rectified all of these issues and created a positive net contribution. Market Penetration and Coverage During the simulation, our team entered three countries (Argentina, Brazil, and Chile). Our most country in terms of market coverage was Argentina (30.9% market share). Interestingly, this was the last market that our team chose to enter. Our second most successful was Brazil (24.2% market share). Even though the percentage is lower than Brazil, our percentage is higher than any of the other competing brands. Our least successful country in terms of market coverage was Chile (18.2% market share). Again similar to Brazil, our team did have the largest market share of any other competitor in the Chilean market. Even though our profits were comparatively smaller than the other markets, the market share in Chile shows that our market penetration and coverage was successful.
Brand equity index objectives Our brand equity proved to be very high by the end of the simulation. In the fourth period, our team greatly increased our advertising, producing very positive results. In the third period, our brand equity was as follows: Brazil (32) and Chile (44). After adding two separate advertisements for each country to create brand awareness, our brand equity jumped to Brazil (69) and Chile (52). As the simulation progressed, our brand equity continued to climb. In the tenth period, our brand equity in each country was as follows: Brazil (71), Argentina (81), and Chile 49. We managed to keep our
brand equity relatively high with exception of Brazil. In the future, we hope that these numbers continue to climb in Brazil and Argentina. Because of our anticipated exit from Chile, our objective is to keep our brand equity constant there until our eventual exit from the Chilean market. Time Frame Associated with Objectives Our firm would like to increase our market share in Argentina and Brazil, withdraw from Chile, and enter other markets in South America. Our estimated time frame to complete this would be another ten periods. Because of all that we have learned in the past, we would now know what it takes in order to make positive profits, increase brand equity, and have a positive net contribution from each market. Within the next ten periods, we would be able to strenghtne our position in South America, increase market share, and make our brand front runner in the market.
Section 3 and 4 Product Strategy Initially our team started off with market entry into Chile. We began with 11 SKUs in this region. However, our initial pricing and SKU range was not appropriate for the region so we made a lot of adjustments. Over the next four periods we made changes to our pricing first because this was the root of the issue and once this was under control we eventually added another SKU that seemed appropriate for the region based on previous sales of other SKUs. We found that most medium sized toothpastes were the most desirable for our customers. With this is mind we offered a variety of different toothpastes in a medium size and only three toothpastes in a small size. We continued to keep these twelve SKUs through the end of the simulation, only altering the number
sold each period according to the sales of each product. Our healthy option and our whitening option were the most popular product, therefore we offered four different SKUs for each type. Our team then made market entry into Brazil. Brazil has a much larger population than Chile so our team introduced fifteen different SKUs to this market to find out which of these would sell best. Over the course of three periods after our entry we noticed that the healthy option of toothpaste was selling the best and the economy option was lagging so we added one more SKU of the healthy option and removed one of the economy options. Similarly to Chile the Brazilian market also seemed to prefer our medium sized products so our group offered a larger number of the medium sized products while still offering a few small sizes. The medium healthy and the medium whitening toothpastes were the most profitable SKUs. Our team kept fifteen SKUs in Brazil throughout the entire simulation but adjusted the amount of each sold every period according to previous sales. Argentina was the final market that our team entered for this simulation. We entered Argentina in period five with fifteen SKUs. We made this decision based off the success we had with certain SKUs in the Brazilian market with hopes that we would find a suitable product mix for the Argentinean market. Argentina was one of our most profitable markets so we kept the fifteen SKUs for the remainder of the simulation. This market preferred more of a variety of options. While the other markets preferred mainly healthy or whitening toothpastes, the Argentinean market was made up of small medium and large sizes. They also had a variety of healthy, whitening, kids and economy; making this marketing our most diverse by far. However, like the other markets, the healthy medium toothpaste and the whitening medium toothpaste were the most successful SKUs.
All three markets began as a trial and error but each one was steadily changed over each period to adapt to the preferences and choices of the people within that market. While we may have started each market with a standard selection of SKUs by the end of the simulation each market had a different selection of SKUs that was specific to that region. If we were to continue this simulation I believe we would continue in much the same way that we have been evolving currently. Each period the amount of each SKU that was offered changed according the sales of that product and the growth of the brand in that region. The stronger our brand name became and the more market share we gained the more we could sell our products. Over time we would introduce more SKUs as our company grew and expanded. Country manager taught our team that choosing a product mix is as much about trial and error as it is about carefully watching customer preference. Each region has a different preference for product depending on taste and price. We also learned that the size of a market is crucial in product strategy because if there arent enough SKUs available to a region of substantial size than it is difficult to promote the brand name and gain brand equity. Operations Strategy We began our operations strategy by initially using a plant in the United States. However, this began to take a toll on our company because of how expensive it is to produce something in the United States and then ship it internationally. Our first market entry was in Chile and due to the small population our team found it difficult to have any success at all. We had delayed the building of our plant in the first few periods because we had yet to decide if we wanted to exit Chile and enter Brazil or stay in Chile and enter Brazil as our second market. We decided to stay in Chile and enter Brazil as our second market. In the third period when we entered Brazil we also decided to build a plant there in order to cut production costs.
We made our initial capacity 100 million units. We soon realized this would not be enough and had to increase our capacity. What we didnt anticipate correctly was that we were also entering a third market so we would need to increase production enough to produce for three countries so that we wouldnt have to import our product from the United States again. However, we did not increase production nearly enough. Without realizing it for the first period we were in Argentina we were importing a lot of our product from the United States because our plant capacity was extremely low. We were importing almost half of our product units from the United States which was a huge issue. This took a toll on our costs because of the amount of money we had to pay in duties and shipping between the countries. In period six we were still way behind in our production capacity for our Brazil plant. We were producing 150 units in Brazil but still producing 108.7 units in the United States. For period seven we increased our plant production up to 200 but this still was not enough because 79 units were still being produced in the United States. We needed to better anticipate the growth that our plant should have because our market was expanding so rapidly. With three markets growing simultaneously we need to increase our production each period by larger and larger amounts. By period eight we had moved our production up to 225 units but we were still importing 76.8 units in the United States. While we struggled with capacity for the majority of the simulation by period nine we finally increased capacity to 310 units in Brazil and only produced 299.4 so we were actually under capacity. This made a huge difference because we were able to save on the costs that we were spending on importing the products we didnt have the capacity to produce. Country Manager alerted our team to the importance of increasing our production capabilities at the same rate that our company was growing. We didnt realize how much it was costing us when we were behind in production. It showed us how much larger the
tariffs are when you produce internationally instead of locally. If we were to continue this simulation into the future I believe that we would model our strategy from the changes we made in period nine. We were much more conscious of the costs of production and the benefits of having a sufficient production capacity. We also learned that it would have been beneficial to build a plant sooner rather than later. We also realized that if we were to continue this simulation into the future and expand our brand even further we would want to build another plant in one of our other markets to further reduce tariffs associated with importing products between South American countries.
#5 Promotion Strategy
For our group we made several mistakes in the beginning of the simulation in regard to our promotion strategy. By period eight we feel as if we successfully corrected all mistakes that we made when we were getting the feel for the program and are in an extremely good position going forward for the last few periods. Our strong point with our advertising campaigns is that we always maintained a good strategy in terms of the product that we were trying to advertise. Each time we opened a new market we made sure to check the success of the SKUs in that new market to make sure that the product we pushed on the public had potential to increase its sales. We felt that it was the best move to take an SKU that was close to the middle of the pack in terms of percentage of sales. We felt this strategy was best because we did not want to further promote products that were already doing well on their own without an advertising campaign behind them. In addition, we did not want to push a product that was not performing well with the consumer base. We felt that by taking a middle of the road product we were going to boost sales significantly for that product and in turn increase our overall revenue. We did not change campaigns often throughout our
process. However, every few years we would update the ads to keep our products relevant and the advertising campaign fresh. A campaign can lose the intended effect after a few years and can stop increasing brand equity. We were also very careful to be sensitive to the culture of each region. For instance, we always made sure that the language for the advertising campaigns we used was the correct ones for each country. Chile and Argentinas advertising campaigns were always in Spanish so that consumers would relate better to the ads. In order to be sensitive to consumers in Brazil we made sure our ads were all in Portuguese since it is what the majority of the population in Brazil speaks. We attempted to make our advertising specific for the local environment as opposed to producing an advertising campaign for the masses. We felt that it was important for our brand equity in each individual country to make sure we catered to the population. By making sure our advertising campaigns were more localized we felt we would see an increase in sales and overall revenue, especially once our brand equity was at an appropriate level. The first country we entered was Chile, which our group later agreed was a large mistake. We miscalculated the importance of the size of the population of the country. While all other aspects of Chile were attractive not having a large consumer base really hurt us. The whole time we were in Chile we pushed only one campaign. That campaign was geared towards families and pushed our economy product. We knew the local language was Spanish so we put our ad campaign in that language. In order to save costs in terms of the campaign we decided to adapt an already existing ad to the country. Clearly it may have been more advantageous to create an entirely new ad, but in the beginning we decided that it was important to save some costs while we got off the ground. In retrospect, it may have been better to push more ads in Chile and increase our brand equity. Once our brand equity was established we could have scaled back our advertising efforts and coasted off high brand equity. In the second period we
updated the ad to keep it relevant. However we were only giving $4 Million in Chilean currency to the campaign. We made the mistake until the fourth period of not realizing that each ad campaign was in the local currency instead of US currency. In the fourth period we upped the level of investment in the campaign to $200 Million which saw a spike in brand equity for us, jumping from 32 to 69 in Chile. We continue along this path with Chile for the next five periods all the way until period 9. At this point we evaluated our promotion budget and decided in order to get a better regional contribution it was important to lower the promotion budget. We then proceeded to lower our budget to 100 million since our brand equity was already at a sufficient level. Overall our promotion strategy had the smallest effect of all the countries. Since we realized our mistake of starting in a country with such a small population we for the most part decided to concentrate our efforts in other countries. This is seen in the fact that we only had one advertising campaign for the entire process and we decided it was not worth the money to exchange campaigns. At the end of the process our brand equity in Chile was the lowest of the three countries we entered with a total of 49. We took a different approach to our campaign in Brazil than we did with Chile. In period 3 we started with only one advertising campaign which focused on the same product as we did in Chile which was geared towards families, our economy product and was adapted from a previous ad campaign. However, we put the ad in Portuguese in order to cater towards our consumer base within Brazil. We also only dedicated $.5 Million to the campaign, again making the mistake of not realizing that all advertising budgets were in the currency of the country we were marketing in. In period 4 we made drastic changes to our campaign in Brazil. Since Brazil has a much larger population than Chile we felt that an aggressive marketing campaign would greatly improve our brand equity and as a result our overall sales. We instituted three different campaigns. We continued the same campaign that we had started in period 3 however we severely
upped the budget to $10 Million. We also put in place two completely new campaigns at $15 Million each. The first was geared towards young people and focused on our healthy product. The second was again catered to families and was centered on our whitening toothpaste. We continued along this path for another few periods until period seven where we cut back a little on our advertising budget for Brazil. We eliminated all campaigns except for our young and healthy marketing strategy which we left untouched. We added one other campaign for $12 Million which was for families and focused on our whitening product. We decided to adapt the campaign from a previous one in order to save ourselves the money from creating an entirely new marketing strategy. We continued this strategy until period nine. We kept the campaigns the exact same but scaled back our budget on both campaigns to $10 Million and kept both the exact same for period 10. We entered Argentina in period 5 with 3 advertising campaigns. The first two were both given budgets of $37.9 Million. The first was a new campaign for young people and focused on our healthy product. The second was an adapted campaign for families for our economy product. The last campaign was adapted and was given a budget of $25.3 Million and was for families and our white product. In period 6 we dropped the family campaign for the economy product, but continued our two others. In period 9 we changed our strategy and drastically pulled back the budget we had given our two campaigns. We used two campaigns for families. The first was the same as before with the whitening product but we updated the ad and gave the campaign a budget of $10 Million. The second was for families as well and was centered on our Economy product. We then proceeded with the same strategy in period 10. In order to continue our increased revenue and sales we would most likely enter a new market relatively soon and possibly jump out of Chile. Each market we enter we would put forth an aggressive advertising campaign in order to increase market
penetration and give us high brand equity. This would initially cost us a lot, but in a few periods would could drastically scale back the budget and still maintain a high level of brand equity and sales. Through Country Manager we have learned a lot about the intricacies of marketing. First and foremost, we learned how many factors there are that go into a successful ad campaign. Making sure that the ad is perfectly suited for the environment and consumers is of the utmost importance. It is also important to judge how much of a budget needs to be set for each campaign. Not having enough funds can seriously jeopardize your companys future in that market, but too much money can severely damage your overall results and your bottom line.
#6 Distribution For distribution there was a clear winner in terms of the most popular way for consumers to buy our products. Hypermarket was easily the most successful way to get our product to the consumers and since this was the case it is where we centered most of our sales force. In each country we attempted different variations of distribution strategies, but by the end of the simulation we were focusing primarily on hypermarket in each of them. By the end of the simulation we were devoting over the majority of our sales force to hypermarket and a very small amount in one or two other distribution channels in each other country. We figured that since hypermarket was so popular it was unnecessary and inefficient to waste resources in markets that were not very popular to begin with. Through this process we learned it is wise to make sure you know where your resources are needed and to allocate them there. In the beginning of the process we were allowing ourselves to distribute in channels that were not producing good results and because of this it hurt our bottom line. In retrospect we should have caught onto the trends from the get go and made sure that was where we focused our resources.
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Marketing plan
8) TARGET MARKETS a. Similar across markets served (vs. different) b. Process for choosing key segments i. Critical bases of segmentation to firm ii. What led to choose specific segments c. Any difficulties encountered to date with respect to specific target markets and how you have responded
Throughout Latin Americas six top emerging marketsArgentina, Brazil, Chile, Mexico, Peru, and Venezuelaour firm Examining six individual Latin American countries for candidacy Consumer Healthcare Allstar Brands Consumer Healthcare Division the entirety of our marketing campaign to establish a presence in Latin American marketplace, 9 Periods on the corporate affiliation with Allstar Brands widespread marketing campaign Period 1the first year to markf 9 Periods Allstar Brands the entirety widespread number of ncouraging Latin Americas widespread new strategic interest in Latin American market entry, our Period 1 Throughout our various different marketing efforts strategic research and Firms success in meeting objectives: Historical perspective on firms operations (highlight successes) Choice of markets entered, and future plans (brief; assignment #1) As structural principles emerged, based on social and economic characteristics, we learned that financial success in these markets w3ould be defined by the following indispensable criteria: Gross Domestic Product Per Capita (GDP), Fresh Water Withdrawal Per Capita (cubic meters per year), and Inflation Rate. These three parameters would help with predicting forecasts of success or failure via market entry.
7.) PRICING
Countries of Interest (Markets of Entry) Argentina Chile Sample Structure VII. Historical Perspective on Firms Observations Historical perspective on firms operations (highlight successes) Choice of markets entered, and future plans (brief; assignment #1)
Brazil
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Marketing plan
9) TARGET MARKETS a. Similar across markets served (vs. different) b. Process for choosing key segments i. Critical bases of segmentation to firm ii. What led to choose specific segments c. Any difficulties encountered to date with respect to specific target markets and how you have responded Sample Structure IX. Historical Perspective on Firms Observations Historical perspective on firms operations (highlight successes) Choice of markets entered, and future plans (brief; assignment #1) Markets Entered Argentina Entered in Period 5 Brazil Chile Entered in Period 3 Entered in Period 1
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Marketing plan
10) TARGET MARKETS a. Similar across markets served (vs. different) b. Process for choosing key segments i. Critical bases of segmentation to firm ii. What led to choose specific segments
c. Any difficulties encountered to date with respect to specific target markets and how you have responded
Sample Structure XI. Historical Perspective on Firms Observations Historical perspective on firms operations (highlight successes) Choice of markets entered, and future plans (brief; assignment #1)
XII.
Marketing plan
11) TARGET MARKETS a. Similar across markets served (vs. different) b. Process for choosing key segments i. Critical bases of segmentation to firm ii. What led to choose specific segments c. Any difficulties encountered to date with respect to specific target markets and how you have responded Sample Structure XIII. Historical Perspective on Firms Observations Historical perspective on firms operations (highlight successes) Choice of markets entered, and future plans (brief; assignment #1) Markets Entered Argentina Entered in Period 5 Brazil Chile Entered in Period 3 Entered in Period 1
XIV.
Marketing plan
12) TARGET MARKETS
a. Similar across markets served (vs. different) b. Process for choosing key segments i. Critical bases of segmentation to firm ii. What led to choose specific segments c. Any difficulties encountered to date with respect to specific target markets and how you have responded
7.) PRICING
Countries of Interest (Markets of Entry) Argentina Chile Brazil
Factors influencing the degree of international pricing strategy standardization of multinational corporations Marios Theodosiou, Constantine S Katsikeas. Journal of International Marketing. Chicago: 2001. Vol. 9, Iss. 3; pg. 1, 18 pgs Abstract (Summary) In response to certain important gaps identified in the global marketing literature, a study investigates the pricing strategies followed by manufacturing subsidiaries of multinational corporations. Specifically, it attempts to identify the factors that play an important role in determining the degree of international pricing strategy standardization. The findings suggest that the extent to which multinationals standardize their international pricing strategies depends on the level of similarity between home and host countries in terms of customer characteristics, legal environment, economic conditions, and stage of the product life cycle. The study highlights implications of the findings for business practitioners and discuss future research directions along with the limitations. Jump to indexing (document details) Full Text (6445 words) Copyright American Marketing Association 2001
[Headnote] ABSTRACT [Headnote] In response to certain important gaps identified in the global marketing literature, the focus of this inquiry is an investigation of the pricing strategies followed by manufacturing subsidiaries of multinational corporations. Specifically, the authors attempt to identify the factors that play an important role in determining the degree of international pricing strategy standardization. The findings suggest that the extent to which multinationals standardize their international pricing strategies depends on the level of similarity between home and host countries in terms of customer characteristics, legal environment, economic conditions, and stage of the product life cycle. The authors highlight implications of the findings for business practitioners and discuss future research directions along with the limitations of the study. Increasing liberalization, interdependence, and competition in world economies have accelerated the need for multinational corporations (MNCs) to develop effective global strategies in their endeavor to achieve sustainable competitive advantage in international markets (Samiee and Roth 1992). Marketing has played a significant role in the advancement of the field of international business; marketing strategy constitutes a critical component of a firm's global strategy (Zou and Cavusgil 1996). The development of optimal programs for global markets is of vital interest to business managers who view international operations as a means of boosting corporate growth, improving competitive position, strengthening financial performance, and ensuring company survival and long-term viability in a highly globalized marketplace. In this context, the extent to which elements of the marketing program should be standardized across markets or adapted in order to accommodate different foreign market conditions, requirements, and preferences has received focal research attention at both the conceptual and the empirical level. The approach an MNC adopts has important implications because (1) it influences the MNC's ability to match its offerings effectively with the overseas market environments in which it operates, (2) it affects its long-term direction with respect to international operations, and (3) it determines the areas that should be prioritized in global resource allocation decisions (Jain 1989). Notwithstanding the long-standing interest in and many articles published on the topic, a review of the pertinent literature illustrates that scant attention has been devoted to investigating drivers of international pricing strategy standardization (Samli and Jacobs 1994). The vast majority of studies have focused on promotion (e.g., Harris 1994; Harvey 1993), product (e.g., Hill and Still 1984; Walters and Toyne 1989), and to a lesser extent distribution (e.g., Rosenbloom, Larsen, and
Mehta 1997) aspects of the international marketing program. However, understanding the elements that influence the extent of standardization of international pricing strategy is vital, because standardization can affect firms' revenue and profitability levels and determine a product's foreign market positioning (Czinkota and Ronkainen 1998). Furthermore, previous standardization studies have commonly been conducted at the headquarters level, and the perceptions and attitudes of subsidiary managers have largely been ignored. Nevertheless, subsidiaries play an important role in international marketing strategy formulation and implementation as a result of their closeness to the market and better understanding of local conditions. In view of these limiting empirical considerations, the primary interests of this investigation focus on the pricing strategies MNCs follow. Because the key consideration in international business operations is whether the marketing strategy should be standardized or adapted, we consider international pricing strategy along the standardization-adaptation continuum (Cavusgil and Zou 1994). Specifically, this empirical inquiry aims to investigate the factors that play an important role in influencing the degree of international pricing strategy standardization from the standpoint of subsidiary managers. The study begins with an overview of the standardization versus adaptation debate. This is followed by an examination of the factors that are potentially associated with pricing standardization and the development of specific research hypotheses. Next, we specify the research method employed, and then present and discuss the results of the study. Finally, we highlight managerial implications of the findings and limitations of the study, along with directions for further research. The degree to which international marketing programs must be standardized or customized has been a contentious issue for more than three decades now. A review of the pertinent literature identifies three schools of thought: the two extreme opposites of complete standardization versus complete adaptation and the "middleof-the-road," or contingency perspective. These perspectives are examined next. The arguments in favor of marketing program standardization emphasize two main aspects. The first involves the drivers of standardization, defined as the developments in the international business environment that make standardization a feasible, or even inescapable strategy. The second aspect refers to the potential advantages that may result for a company that pursues a strategy of international marketing program standardization, advantages that make standardization a desirable alternative. Technological developments in the areas of communication and transportation, as well as increasing international travel by tourists and businesspeople, are considered driving forces behind the creation of a global village and thus a global marketplace (e.g., Elinder 1965). In a controversial article, Levitt (1983, p. 95) claims that in this new commercial reality, people around the world have the same needs and desires and that "almost everyone, everywhere, wants the things they
have heard about, seen or experienced through the new technologies." Similarly, Ohmae (1985) refers to the emergence of the Tridians: the residents of Japan, the United States, and the European Union. These people have similar academic backgrounds, income levels, lifestyles, uses of leisure time, and aspirations; as a result, 600 million consumers in all parts of the Triad have strikingly similar needs and preferences. Other drivers of standardization discussed in the literature include the need of international firms to serve their multinational customers (Buzzell 1968; Douglas and Wind 1987), regional economic integration (e.g., North America and the European Union) (Walters and Toyne 1989), and the growth of international market segments with similar needs and preferences (Yavas, Verhage, and Green 1992). Proponents of standardization also emphasize several important benefits associated with the pursuit of this strategy. The most significant advantage of standardization is its contribution to the achievement of economies of scale and cost savings in production, research and development, and marketing (e.g., Keegan 1969). By fully exploiting the potential for economies of scale in all value-adding activities through marketing program standardization, international firms will be in a position to gain a significant advantage over their competitors by selling high quality products at lower prices (Levitt 1983). Other advantages of standardization proposed in the literature include the potential for rapid introduction of new products in international markets (Samiee and Roth 1992; Walters and Toyne 1989), the presentation of a consistent image across markets (Harvey 1993), the ability for worldwide exploitation of new and innovative ideas (Buzzell 1968; Quelch and Hoff 1986), and better coordination and control of international operations (Douglas and Craig 1986). The adaptation school of thought emerged essentially as a reaction to the arguments put forward in favor of standardization. First of all, many academics expressed their disagreement with Levitt's (1983) argument about a worldwide homogenization in needs and preferences, viewing it as overly simplistic, myopic, and contrary to the marketing concept (e.g., Boddewyn, Soehl, and Picard 1986; Douglas and Wind 1987). According to these authors, no hard evidence can be produced in support of Levitt's thesis (Douglas and Craig 1986; Onkvisit and Shaw 1990; Wind 1986). Cross-cultural empirical research has found significant differences in customer characteristics, preferences, and purchasing behavior among different countries (e.g., Diamantopoulos, Schlegelmilch, and Du Preez 1995). Second, critics of standardization have questioned the significance of economies of scale and the cost savings underlying this approach. On the one hand, technological developments in flexible manufacturing systems and computer-aided design and manufacturing facilitate production of customized products without major cost implications and reduction in the minimum efficient scale of production (Douglas and Wind 1987; Walters and Toyne 1989). On the other hand, it has been suggested that certain industries (e.g., packaged consumer goods) are less susceptible to manufacturing and research and development economies (Quelch and Hoff 1986).
Moreover, several authors have claimed that even when cost savings can be made, their effect may not be significant if a large proportion of the total cost is determined by factors on which standardization has no impact (e.g., cost of raw materials and labor) (Douglas and Craig 1986). Third, according to critics of standardization, there is no evidence to suggest that customers have become more price conscious or that they are willing to trade off specific product features for lower prices. It has been argued that low price positioning is a vulnerable strategy that may not lead to the achievement of sustainable competitive advantage (Douglas and Wind 1987; Wind 1986). Fourth, the decision whether to standardize does not depend on managerial discretion alone. Certain external (e.g., environmental, market, industry) and internal (e.g., organizational structure and processes) factors may limit the degree of standardization that a firm is able to apply (Boddewyn, Soehl, and Picard 1986). Such factors are responsible for mandatory adaptations, defined as the adaptations a company is obliged to make, because of either legislation and allied governmental regulations or inescapable and uncontrollable marketplace realities (Hill and Still 1984). Furthermore, some authors have indicated several important benefits that are likely to result from adapting international marketing programs to local market conditions. These include deeper penetration of foreign markets and thus increased market share and sales volume for the firm (Cavusgil, Zou, and Naidu 1993); enhanced motivation and morale of local managers (Douglas and Wind 1987; Quelch and Hoff 1986); and augmentation of firms' capabilities in analyzing and understanding foreign markets, monitoring market developments overseas, and quickly responding to shifts in customer preferences (Craig and Douglas 1996). Recent standardization literature has followed a more fruitful research avenue by supporting the contingency perspective of international marketing (e.g., Cavusgil, Zou, and Naidu 1993). According to this perspective, the difference between standardization and adaptation is in degree rather than in kind, and the two perspectives are viewed as occurring along a continuum on a bipolar scale (Onkvisit and Shaw 1987). Therefore, the challenge facing international marketing managers is to decide which marketing-mix elements they should standardize or adapt, under what conditions, and to what degree (Buzzell 1968; Jain 1989). The critical issue in designing international marketing strategies in the framework of contingency theory is to identify contextual factors that determine the appropriate degree of marketing program standardization and determine which individual marketing-mix elements are influenced by each factor and to what extent. In response to this challenge, academic researchers have examined the factors that play an important role in the determination of marketing program standardization, and several classificatory schemes have been proposed (e.g., Cavusgil, Zou, and Naidu 1993; Jain 1989; Johnson and Aruthanes 1995).
A review of the extant literature suggests that these factors can be organized into four broad categories: (1) macroenvironmental factors, including economic, legal, cultural, physical, and demographic elements (Douglas and Wind 1987; Jain 1989); (2) microenvironmental factors, such as customer characteristics, attitudes, and behavior (Jain 1989); the structure and nature of competition (Cavusgil, Zou, and Naidu 1993; Ozsomer, Bodur, and Cavusgil 1991); and the availability, cost, and competencies of marketing intermediaries (Harvey 1993; Wind and Douglas 1986); (3) firm-specific factors, including the degree of centralization in decision making (Quelch and Hoff 1986; Ozsomer, Bodur, and Cavusgil 1991), the relationship between headquarters and local subsidiaries (Jain 1989), corporate orientation (Perlmutter 1969), the firm's experience in international operations (Cavusgil, Zou, and Naidu 1993; Craig and Douglas 1996), and the subsidiary's ownership structure (Rau and Preble 1987); and (4) product and/or industry factors, such as the nature of product (Cavusgil, Zou, and Naidu 1993), stage of product life cycle (PLC) (Baalbaki and Malhotra 1995; Rau and Preble 1987), cultural specificity of the product (Cavusgil and Zou 1994; Quelch and Hoff 1986), product uniqueness (Cavusgil, Zou, and Naidu 1993), conditions and patterns of product use (Hill and Still 1984), product familiarity of foreign customers (Cavusgil, Zou, and Naidu 1993), and industry technology orientation (Quelch and Hoff 1986; Samiee and Roth 1992). In investigating the factors influencing the degree of international pricing strategy standardization, we attempted to include the largest possible number of relevant contingency variables. However, that the present study represents the first systematic endeavor to examine this issue using a descriptive, hypotheticodeductive research approach was a serious obstacle to this end. Although a large number of potentially important variables have been proposed by various authors at the conceptual level (as discussed in the previous section), only a limited number of these have been empirically tested. We therefore deemed it appropriate, from a methodological point of view, to limit our effort to the examination of contingency variables whose relevance had been established in previous standardization studies and that could be linked specifically to the degree of international pricing strategy standardization pursued by MNCs. Accordingly, a review of the limited empirical evidence, combined with relevant conceptual work, revealed five factors that are potentially important in influencing the extent to which MNCs standardize their international pricing strategy: economic environment, legal environment, distribution infrastructure, customer characteristics and behavior, and stage of PLC. The relevance of each factor is considered next. The economic conditions prevailing in a host country can influence pricing decisions in several ways, because they determine demand potential for a particular product and have a significant impact on a firm's cost structure. On the demand side, the overall level of economic and industrial development of a country determines customers' priorities in terms of the products they consider essential, in addition to the prices they are able and willing to pay for certain products (Jain 1989). For example, a product considered essential in a developed country may be
viewed as less necessary or even as a luxury item in a less developed country (Hill and Still 1984). Moreover, demand for a product at different price levels is a function of the purchasing power of targeted customers, which is determined by the level of economic development of the country (Jain 1989). On the cost side, the economic environment of the host country determines the cost of raw materials, labor, energy, and other resources a firm needs to purchase or hire in order to carry out its everyday operations (Douglas and Wind 1987; Samli and Jacobs 1994). The level of such costs has a direct impact on the overall cost structure of local subsidiaries. Thus, the pricing policy pursued by an international firm in a particular foreign market should reflect these factors. We therefore advance the following: H1: The greater the similarity in the economic environment between an MNC's home and host countries, the higher is the degree of pricing standardization. Empirical research has shown that differences in government laws and regulations across markets are among the major obstacles to standardization (Baalbaki and Malhotra 1995; Cavusgil, Zou, and Naidu 1993). A common law found in many countries that directly influences pricing is retail price maintenance, which requires firms to sell certain products at specified prices. The purpose of such laws is either to protect customers from unfair exploitation or to ensure that certain sensitive products (e.g., pharmaceuticals) are easily accessible to almost everybody in the population. Governments may also impose price controls on certain products to protect local producers from international competition that is deemed unfair. Furthermore, pricing is influenced indirectly by laws and regulations that necessitate product modifications in compliance with different technical specifications; health and safety standards; environmental protection acts; electric, weight, and measurement systems; and the like that may prevail in foreign markets (Buzzell 1968; Cavusgil, Zou, and Naidu 1993; Douglas and Wind 1987). To make the required modifications, firms incur extra costs, which forces them either to charge higher prices or to compress their profit margins. We therefore expect the following: H2: The greater the similarity in government laws and regulations between an MNC's home and host countries, the higher is the degree of pricing standardization. International firms often must rely on existing distribution channels to distribute their products in foreign markets. Therefore, the number, type, competencies, costs, and margins of the intermediaries involved in the process of transferring the product from the point of production to the end user have a significant effect on a firm's cost structure-particularly if the distribution cost constitutes a significant proportion of the total cost. This, in turn, may influence price levels, profit margins, and allied international pricing policy elements (Buzzell 1968). For example, if the distribution channel used in a particular foreign market involves a greater number of intermediaries or channel members are less competent and efficient than those in the domestic market, a significantly higher cost will be added to the product by the time it reaches the end user. The additional cost incurred is likely to result in higher
final selling prices and/or reduced profit margins for the firm. Under such circumstances, a firm may also decide to modify other elements of its international pricing policy, including sales and credit terms and discounts offered. It is therefore possible to hypothesize the following: H3: The greater the similarity in the distribution infrastructure between an MNC's home and host countries, the higher is the degree of pricing standardization. The extent to which an MNC will achieve its objectives in a particular foreign market will depend largely on its ability to satisfy the needs and preferences of target customers. Therefore, a careful examination of overseas customer characteristics and purchasing behavior is essential in selecting an appropriate pricing strategy for a specific foreign market. Price level is among the most important criteria used by customers in evaluating competing products (Levitt 1983). However, not all customers are price sensitive; other criteria (e.g., product quality and performance) may be equally or even more important to certain customers (Douglas and Wind 1987). Therefore, in developing its pricing policy, an MNC must be aware of foreign customers' preferences, perceptions, and purchasing behaviors with respect to various price levels. A standardized pricing policy is more appropriate if domestic and foreign customers place an equal emphasis on and have similar perceptions of price. This is more likely to happen when a company is targeting similar customer segments in domestic and foreign markets (Jain 1989). Therefore, we suggest the following: H4: The greater the similarity in customer characteristics and purchasing behavior between an MNC's home and host countries, the higher is the degree of pricing standardization. The stage of PLC is a fundamental variable affecting business strategy (Anderson and Zeithaml 1984). The life cycle of a product consists of four major stages--introduction, growth, maturity, and decline--and marketing strategy programs differentiate across the various stages. Several empirical studies demonstrate the important role PLC plays in determining the degree of international marketing strategy standardization (Baalbaki and Malhotra 1995; Johnson and Aruthanes 1995). Because of possible differences in economic and market development levels among countries, some products may be at different stages of their life cycles in different countries (Buzzell 1968). As a result, MNCs may need to modify their pricing programs to take account of particular local market conditions (Rau and Preble 1987). The significance of such an approach diminishes in circumstances in which there is no difference in a product's life cycle stage between the domestic and international markets (Sorenson and Wiechmann 1975). We therefore hypothesize the following: H5: The greater the degree of similarity in the stage of PLC between an MNC's home and host countries, the higher is the degree of pricing standardization. We gathered data for this study from a mail survey of manufacturing subsidiaries of MNCs operating in the United Kingdom. We developed the sampling frame for this
study using the Financial Analysis Made Easy electronic database of U.K. firms. We identified 706 manufacturing subsidiaries of MNCs, which originated mostly from the United States, Germany, and Japan. We then contacted each of these firms by telephone to ensure that the correct address of each company was available, discover whether there was a product or product line that both the parent firm and its U.K. subsidiary produced and marketed in their home markets, identify the person in each company who was the most qualified to provide the required information (i.e., the key informant), and encourage respondent participation in the survey. Upon completion of the telephone contacts, we excluded 201 firms for a variety of reasons, including an absence of common products in the portfolios of the parent firm and its U.K. manufacturing subsidiary, a company policy of not taking part in external research studies, a change in the firm's status as a result of a merger or acquisition, or the unavailability of correct contact details. In 505 of the 706 (72%) firms, we identified individuals who met the knowledgeability criterion for key informants and were willing to participate and whose companies had a product or product line that the parent firm also manufactured and marketed in its own domestic market. All these firms were targeted in this research. We developed the questionnaire used in this research in several steps. We initially reviewed the relevant literature and simultaneously conducted exploratory interviews with executives in subsidiaries of MNCs to identify items for operationalizing the constructs under investigation. We designed a preliminary questionnaire, which we then asked several academic researchers in the field of international marketing to evaluate; they served as expert judges to appraise the face validity of the items selected. Finally, we extensively pretested and refined the revised questionnaire in personal interviews with managers in subsidiaries of MNCs, which thus assured content validity. Cavusgil and Zou (1994) argue that any study on international marketing strategy standardization conducted at the overall company level is likely to result in confounded and thus unreliable findings. This is because international firms often employ different marketing strategies across countries and product-markets. Therefore, in addressing this problem in the study of pricing strategy standardization of MNCs, we adopt the product or product line as the unit of analysis. Specifically, we ask respondents to answer the questions of the research instrument with reference to a particular product or product line their company (i.e., the subsidiary) is manufacturing and marketing in the United Kingdom but that is also manufactured and marketed by the parent firm in its home market. The extent of international pricing strategy standardization was measured on the basis of five items (see Table 1). Respondents were asked to compare the pricing policy followed by the subsidiary with that pursued by the parent company in its home market. A seven-point rating scale, anchored by "very different" (1) and "very similar" (7), was used to capture individual responses. Regarding the factors that
potentially influence pricing strategy standardization, a set of items was used to measure the degree of similarity in economic and legal environments, customer characteristics and behavior, and distribution infrastructure between the U.K. market and that in which the parent firm was based (see Table 2). Again, responses were captured on a seven-point scale ranging from "very different" (1) to "very similar" (7). Following Kotabe and Omura (1989) and Johnson and Aruthanes (1995), a single item was employed to assess the extent to which the focal product or product line is in the same life cycle stage in both the United Kingdom and the parent firm's home market. A seven-point scale, anchored by "strongly disagree" (1) and "strongly agree" (7), was used to measure participant responses. The guidelines of the total design method (Dillman 1978) were followed to enhance respondent participation in this mail survey. A copy of the questionnaire, together with a self-addressed, postage-paid envelope and a cover letter, was personally mailed to the key informant in each target firm who had been identified during the telephone contacts. Reminder/thank-you postcards to all managers and two additional follow-up mailings, followed by two further reminders, produced 129 usable responses. Therefore, a satisfactory response rate of 26% was achieved. Table 1. Table 2. To assess possible nonresponse bias, we followed Armstrong and Overton's (1977) formal extrapolation procedure, which is based on the contention that, as contrasted with early respondents, late respondents are more likely to be similar to nonrespondents. Using a t-test under the assumptions of both equal and unequal group variances, we found no significant between-group mean differences between the early and late respondent groups with regard to any of the variables examined in the study. We therefore conclude that nonresponse bias is not likely to be a problem in this research. Scatter diagrams and bivariate correlation analyses pertaining to (1) the international pricing strategy standardization indicators and (2) the external elements that potentially influence the degree of pricing standardization indicated that certain items were highly correlated. Principal components analysis was thus employed in each set of items to explore the presence of an underlying structure in the data. Table 1 exhibits the results of principal components analysis for the international pricing strategy standardization items. When we used an eigenvalue of one or greater as the factor selection criterion along with the screen test, a single-factor
solution emerged that explained nearly 70% of the total variance. Table 2 shows the principal components analysis results with respect to the environmental elements that potentially influence the degree of pricing standardization. A four-factor solution emerged that accounted for approximately 67% of the total variance. The solution featured strong individual loadings on each factor, enabling straightforward interpretation. The four factors have been labeled legal environment, customer characteristics, economic conditions, and distribution infrastructure. Factor scores were then computed for all five factors that emerged for use in subsequent analysis. Multiple regression analysis was used to estimate the relationships of economic conditions, legal environment, distribution infrastructure, customer characteristics, and stage of PLC (independent variables) with subsidiary performance (dependent variable), thus testing H1-H5. As shown in Table 3, both the goodness-of-fit and explanatory power of the estimated regression model were acceptable. The analysis revealed four significant, positive relationships in the equation, pertaining to customer characteristics, legal environment, economic conditions, and PLC stage. These results suggest that the degree of international pricing strategy standardization of MNCs is influenced by the level of similarity between home and host countries in terms of customer characteristics, legal environment, economic conditions, and PLC stage. No relationship was established between similarity in distribution infrastructure and pricing standardization. Therefore, it can be concluded that H1, H2, H4, and H5 are validated and H3 is rejected. Despite the substantial amount of research attention devoted to the subject of marketing program standardization in international markets, little empirical work has been undertaken examining the issue of standardization within the context of MNCs' pricing strategy. To contribute toward filling this void in the global marketing literature, the focus of the present study is the nature of pricing strategies followed by MNC manufacturing subsidiaries and the identification of the factors that drive the extent of international pricing strategy standardization. The study found that the majority of the participant MNC subsidiaries adopt a relatively high degree of pricing strategy standardization. This is signified by the mean scores, standard deviations, and one-sample t-test results for the items used to measure the pricing standardization construct (see the Appendix). This evidence may be attributed to the fact that the vast majority of the sample firms originate in the United States, Germany, Japan, or another developed nation. These countries have considerable resemblance to the United Kingdom in their levels of economic, industrial, and market development, and this similarity is conducive to the pursuit of international pricing standardization. However, previous research shows that a high level of pricing standardization is uncommon among MNCs that operate in less developed host market contexts compared with their home market bases (e.g., Ozsomer, Bodur, and Cavusgil 1991). Notably, our findings appear to suggest that the opposite is true for MNCs domiciled in a developed country and operating in another developed country.
Regarding the determinants of pricing standardization, the results indicate that the extent to which MNCs standardize their international pricing strategies depends on certain environmental and market conditions-the degree of similarity between a firm's home and host markets in terms of economic conditions, legal environment, customer characteristics, and stage of PLC. These findings are consistent with earlier research efforts that have examined determinants of standardization, but within the framework of an overall marketing strategy (e.g., Douglas and Wind 1987; Jain 1989; Johnson and Aruthanes 1995; Samiee and Roth 1992; Samli and Jacobs 1994). However, the level of similarity in the distribution infrastructure between home and host countries was found, contrary to expectations, not to play an important role in the determination of the degree of international pricing standardization. One possible explanation for this result is that distribution costs represent a minor component of the product's total cost and, in turn, have no significant effect on the international pricing strategies of the participant MNCs. Nevertheless, this is an issue that warrants further empirical investigation. Managerial decision making regarding standardization or customization of pricing strategies in international markets should be based on a thorough analysis and assessment of the degree of similarity (or difference) between the firm's home and host markets. In this regard, four factors-customer characteristics and behavior, economic and legal conditions, and stage of PLC-must be taken into account; our study suggests that these elements are significant correlates of standardized pricing programs. Furthermore, because the standardization versus adaptation decision is situation specific, a separate analysis and assessment of the environmental and market conditions that prevail in each targeted foreign market should be performed. Then, appropriate pricing strategies must be developed with respect to each market. At the same time, however, special attention should be paid to the coordination of business operations across different foreign markets and the exploitation of potential scale economies and synergies with the ultimate objective of enhancing the overall company efficiency and effectiveness. The results of the present study substantiate the conclusion drawn in previous empirical research (Cavusgil and Zou 1994) that success in international markets is within the reach of management. Despite the existence of a large and complex set of factors that influence international business activities, managers may be able to enhance the performance of their firms by formulating and implementing marketing programs that match the environmental and market conditions of each foreign market targeted (see Venkatraman and Prescott 1990). It should be remembered that because pricing affects the revenue side of the profitability equation, the ultimate long-term objective of managers in setting international pricing policy centers on revenue maximization. This objective can be achieved through either premium pricing when market conditions are favorable (i.e., demand is strong and competition is weak) or competitive pricing when they are hostile (i.e., demand is weak and competition is intense). Sometimes, however, firms may be forced to
adopt uniform pricing across markets as a defensive measure against the graymarket imports of unauthorized intermediaries that are completely out of their control (Cavusgil 1996). Table 3. Certain limitations evident in the explication of this study should be taken into account. First, the empirical inquiry focused on a specific international market framework (i.e., the United Kingdom), which suggests that the results may suffer from limited external validity. Therefore, readers should exercise caution in attempting to generalize from this investigation, especially if making inferences to other significantly different economic settings such as former Eastern Bloc or newly industrialized regions. Testing the external validity of the present evidence requires an examination of the issues addressed in this study within other international business contexts. Second, the study employed a cross-sectional research design that prevents us from making cause/effect inferences. Future research efforts may consider the use of a longitudinal methodology that, though costly and time consuming, can help track dynamic phenomena such as the relationships of extent of international pricing strategy standardization with its determinants. Third, because of the descriptive nature of the present study, combined with the limited amount of available empirical evidence, a relatively limited number of potential independent variables have been examined. Further research should investigate the significance and relative importance of other contingency factors. For example, more emphasis should be placed on investigating the influence of various firm characteristics and product- and/or industry-specific factors on the degree of international pricing strategy standardization. Given the absence of pertinent empirical evidence, there is a need for more exploratory research to gain insights into the interrelationships among these variables and how they affect international pricing programs. Fourth, the present study looked only into the content aspect of standardization with reference to pricing. Another relevant aspect could be process standardization, which involves the use of uniform structures and processes for the design, implementation, and control of marketing programs in overseas markets (Jain 1989). Future research efforts could add to the body of existing knowledge by exploring the extent of standardization of the process MNCs follow in formulating their pricing strategies across different foreign markets. Finally, a natural extension of the present study would be to consider performance outcomes of international pricing standardization. The pursuit of a particular international pricing strategy makes sense from a managerial perspective only to the extent to which it has a positive effect on the performance of the firm.
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Findings," Management International Review, 32 (3), 265-72. Zou, Shaoming and S. Tamer Cavusgil (1996), "Global Strategy: A Review and an Integrated Conceptual Framework," European Journal of Marketing, 30 (1), 52-69 [Author Affiliation] Marios Theodosiou and Constantine S. Katsikeas [Author Affiliation] (c) Journal of International Marketing Vol. 9, No. 3, 2001, pp. 1-18 ISSN 1069-031X [Author Affiliation] THE AUTHORS [Author Affiliation] Marios Theodosiou is Lecturer in Marketing, School of Economics Fy Management, University of Cyprus. [Author Affiliation] Constantine S. Katsikeas is Sir Julian Hodge Chair in Marketing Fr International Business, Cardiff Business School, Cardiff University.
Antecedents and actions of export pricing strategy: A conceptual framework and research propositions Matthew B Myers, S Tamer Cavusgil, Adamantios Diamantopoulos. European Journal of Marketing. Bradford: 2002. Vol. 36, Iss. 1/2; pg. 159, 30 pgs Abstract (Summary) The export-pricing literature is characterized by a distinct lack of sound theoretical and empirical works. Of the marketing decision variables, pricing has received the least attention in research despite the continued identification of this issue as an important problem area for firms engaged in export marketing. Businesses competing internationally must develop an effective pricing strategy, as this is a critical factor in their operation. Globalization also requires that management coordinate prices across multiple export markets. Research is thus needed on the empirical relationship between an export-pricing strategy (EPS) and the factors that influence this strategy, as well as the relationship between EPS and the performance of the export venture. A multidimensional conceptualization of export-pricing strategy is proposed in order to integrate the various components of an EPS and link it with its antecedents.
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[Headnote] Keywords Pricing, Export, International business, Marketing, Management [Headnote] Abstract The export-pricing literature is characterized by a distinct lack of sound theoretical and empirical works. Of the marketing decision variables, pricing has received the least attention in research despite the continued identification of this issue as an important problem area for firms engaged in export marketing. Businesses competing internationally must develop an effective pricing strategy, as this is a critical factor in their operation. Globalization also requires that management coordinate prices across multiple export markets. Research is thus needed on the empirical relationship between an export-pricing strategy (EPS) and the factors that influence this strategy, as well as the relationship between EPS and the performance of the export venture. A multidimensional conceptualization of export-pricing strategy is proposed in order to integrate the various components of an EPS and link it with its antecedents. Theoretical insights and empirical findings from the general pricing literature, as well as executive insights from qualitative interviews, are connected with the conventional export-pricing and strategy literature into an integrated model, and specific research propositions are offered for future cross-industry empirical studies. Introduction The pricing of products in international markets is becoming increasingly difficult for managers due to heightened competition (Cavusgil, 1996), gray market activities (Myers, 1999; Assmus and Wiese, 1995), counter-trade requirements (Cavusgil and Sikora, 1988), regional trading blocs (Weekly, 1992), the emergence of intra-market segments (Dana, 1998), and volatile exchange rates (Knetter, 1994). As global economic foundations continue to shift, long-proven pricing structures are collapsing (Simon, 1995). As competitive pressures increase, strategies for effective pricing of products for sale in foreign markets remain elusive (Samli and Jacobs, 1993). Unfortunately, there is little research to guide managers in their international pricing efforts (Clark et al., 1999). Typically, they rely on intuitive measures and give more strategic focus to other marketing decision variables (Cavusgil, 1996). This often leads to unsuccessful market ventures, since businesses operating in a global environment must have a systematic pricing procedure (Samiee, 1987). Although Ricks et aL (1992) found that it was the number-two problem for international
managers, pricing has perhaps been the most ignored marketing decision variable within the research (Li and Cavusgil, 1991; Gronhaug and Graham, 1987; Cavusgil and Nevin, 1981). Most efforts to understand the effects of pricing strategies on firm performance have been undertaken within a purely domestic or single market context with little consideration for the increasingly international configuration and organizational goals of the firm (Myers, 1997). Several types of international pricing are done by firms, and each demands a different approach. Transfer pricing concerns the sale of products within the corporate family. Foreign-market pricing is done by a firm with production facilities within an overseas market (completed products do not cross borders to reach the customer). Export pricing refers to products made in one country and sold to customers outside the corporate family in another country (i.e. independent distributors). In this article, we concentrate solely on export pricing, which is a frequent and formidable challenge for most exporters (Walters, 1989). In addition, we focus on direct, rather than indirect, exporters, since indirect exporters are often restricted in their pricing choices by export agents, and rarely deal with the international issues which make direct exporting so complex (Nagle and Ndyajunwoha, 1988). In this context, while there is evidence to suggest that pricing is a key variable affecting export performance (e.g. Bilkey, 1982; Koh and Robicheaux, 1988; Kirpalani and Macintosh, 1980), most pricing research emphasizes the domestic market, (addressing such issues as price promotions, consumers' reaction to price, and price-quality relationships), rather than export customers. Given that: few studies have examined export pricing as opposed to other aspects of pricing strategy; what little research that does exist lacks strong conceptual foundations; and insights from the general pricing literature have not been applied to an export context to any appreciable extent, the present article seeks to provide a conceptual framework for pricing in an export context and link it to export performance. Specifically, the purpose of the study is threefold. First, we identify key organizational and environmental factors specific to an export setting that act as antecedents of export pricing strategies. Second, drawing upon the pricing and exporting literatures as well as from exploratory interviews with export managers, we develop a series of research propositions designed to link pricing strategies, contextual variables, and export performance. Finally, we make several suggestions regarding future research in this area and provide guidance in operationalizing key constructs. In the next section, we highlight the distinct nature of export pricing decisions and provide a brief review of past literature. This is followed by a presentation of the proposed conceptual framework and associated research propositions. The paper concludes with identification of future research directions. The distinct nature of export pricing Global marketing decisions about product; price and distribution differ from those made in a domestic context, in that environments within which those decisions are
made are unique to each country Gain, 1989), and the pricing problems faced by exporters are distinct from those faced by purely domestic firms in that variables associated with both home and export markets must be integrated into managerial decision making (Diller and Bukhari, 1994). Distinct issues include increased competitive levels, gray market activities, counter-trade requirements, regional trading blocs, standardization versus localization issues, the emergence of intramarket segments, and exchange rate volatility (Cavusgil, 1996; Cavusgil and Zou, 1994; Paun and Albaum, 1993; Samli and Jacobs, 1994; Samiee, 1987). The methods which management utilize to address these environmental issues must be synthesized with organizational concerns such as objectives of the venture (Cavusgil, 1988) and market-related concerns such as market volatility and disparate customer needs (Cavusgil and Zou, 1994), which can greatly narrow the domain of the firm's foreign market activities. Pricing strategies are often based on the premise that the most effective strategies are not apparent until certain shared economies or cross-subsidies are evident. In his taxonomy of pricing strategies, Tellis (1986, p. 147) states that: ... in a shared economy, one consumer segment ... bears more of the average costs than another, but the average price still reflects cost plus acceptable profit. The use of such economies may be triggered by heterogeneity among consumers. In business-to-business exchange, the consumer is the firm, and the heterogeneity across these firms is a product of economic conditions within the market as well as different utility among buyers (see Moriarty (1983)). However, buyer heterogeneity in business-to-business exchange will be reduced relative to that of consumers for a number of reasons. Organizational buyer behavior theorists (e.g. Moriarty, 1983; Heide and John, 1990) posit that organizational buying is distinct from consumer buying behavior in that: (1) organizational purchases are made in group form, typically by a decision-making unit; (2) an organizational decision to purchase must satisfy differing needs and objectives of a variety of participants; (3) certain types of organizational buyer information, including proposals, price quotes, and purchase contracts, add to the organizational purchase a formal dimension not found in consumer buying; and (4) the personal and organizational risk of a company's purchasing decision is generally greater than that of individual consumers (see Moriarty, 1983). Given these parameters, organizational buying is seen as more rational in nature than consumer purchasing, and as a result more homogeneous. When the purchasing entities are importers, however, heterogeneity in the pricing decision
model is enhanced by diverse economic conditions across markets (cf. Bello and Gilliland, 1997). In these exchange relationships, information deficiency still exists, yet this deficiency enhances problems beyond what is experienced in domestic exchange. For instance, the search costs of importers compared with domestic buyers will be considerably higher (Anderson and Gatignon, 1986). Furthermore, transaction costs associated with travel, commercial risk and capital significantly exceed that of domestic exchange (Aulakh and Kotabe, 1997). The lack of incorporating the dyadic diseconomies, or the differences in market environments between the buyer and seller which are present in import-export exchange, and the omission of market-related variables, is largely responsible for our inability to rely on traditional theory to explain export pricing strategies. Examples of these dyadic diseconomies are easily made. For instance, market volatility, particularly in the form of foreign currency volatility and inflation rates, are characteristics of economic fluctuations, which result in risk and uncertainty in overseas markets (Aulakh and Kotabe, 1997). Frequent volatility of currency rates suggests that exporters may find themselves benefiting from a weak currency one month and struggling with an over-- valued currency the next. These exporters must be vigilant in their pricing by concentrating on the market's ability to purchase during exchange rate fluctuations. Import policies and trade barriers in import markets have a significant effect on export pricing decisions as well (Cavusgil, 1988, 1996). Price escalation due to import barriers may eat away at profit margins. Price- quality relationships in overseas markets may also vary significantly, since all imported products may suffer from price escalation (Johannson and Erickson, 1985). The strategy options open to firms may be limited in order to maintain affordable products for the buyer. With the increased tension between nations over trading policies, such issues as intellectual property rights (Maggs and Rockwell, 1993), non-tariff barriers (Frank, 1984), and anti-dumping legislation have assumed considerable importance and have an obvious connection to export pricing (Joelson and Wilson, 1992). Export markets with strict price-- window regulations often restrict the ability of firms to price at competitive levels (Myers, 1997) and often firms must satisfy local conditions by concentrating on non-price aspects of exchange, such as the use of local or third country currencies of offering volume discounts (Weekly, 1992). The degree of customer sophistication can also vary widely across markets (see Morris and Morris (1990)) and, in many developing economies, customers are less technologically proficient or knowledgeable regarding potential suppliers (Kotabe and Helsen, 2001). More sophisticated customers will often accept high search costs in efforts to locate the best price (Tellis, 1986), and are familiar with the pricing schedules of suppliers and will time their purchases accordingly to lock-in lower prices. Also, more sophisticated customers understand the cost structures of particular products better and, therefore, have a reference for fair price" (Nagle, 1987). Upper and lower thresholds for acceptable prices are thus more firmly established.
Given the critical nature of pricing decisions and the large number of firms that employ export marketing as an internationalization strategy, one would expect a wide range of studies concerning company practices in export pricing. As noted, however, relatively few have been conducted. According to Walters (1989), much of the work in international pricing concerns transfer pricing in multinational corporations (e.g. Al-Eryani et al., 1990; Arpan, 1973). Some important studies exist, however, on the effect of an overseas market environment on pricing, on pricing in developing countries and in specific markets, and on price controls overseas (Walters, 1989). Several pricing-- decision models have resulted from research on fluctuating exchange rates, including work by Clague and Grossfield (1974) and Choi (1986), and the literature also includes several qualitative models and approaches in overseas pricing situations (e.g. Farley et at, 1980; Rao, 1984; Walters, 1989). The research that does exist, however, (e.g. Clark et at, 1999; Samli and Jacobs, 1993, 1994; Diller and Bukhari, 1994), supports our argument that a wide variety of organizational and environmentally specific factors influence export pricing. Cavusgil (1988) summarizes these factors into six groups of variables: (1) nature of the product or industry; (2) location of the production facility; (3) system of distribution; (4) location and environment of the foreign market; (5) regulatory framework; and (6) management attitudes. In a similar vein, Lancioni (1988) states that price setting in international markets should be approached at two different levels - the external (customers, competition, government regulations) and the internal (cost reduction, ROI levels, and sales volume requirements) - and that both must be taken into account. This is plausible, since export pricing is an integral part of overall export strategy; indeed, exporting itself can be conceived as a strategic response by management to both internal and external forces (Cavusgil and Zou, 1994). The former relate to such organizational characteristics as corporate goals, desire for control over prices, and degree of company internationalization, while the latter include competitive pressures, demand levels, legal and governmental regulations, and exchange rates. The degree of alignment of these forces with the marketing strategy of the firm determines its performance (Aldrich, 1979; Porter, 1980). This principle suggests that pricing can be used as a distinct proactive strategy within the overall export marketing strategy of the firm. In this context, both the exporting literature (e.g. Walters, 1989) and the general pricing literature (e.g. Diamantopoulos and Mathews, 1995) suggest that
successful price decision making is highly dependent on the situational variables that characterize dynamic, turbulent environments. In summary, while managers will encounter many of the same type of market forces in the international arena as at home, in each export market these forces have a different effect and a different "constellation" of components (Kublin, 1990), including specific components not characteristic of domestic operations. These characteristics, discussed in detail in the following section, make pricing in export markets particularly problematic for managers. A conceptual framework for export pricing decisions Both the export marketing literature (e.g. Walters, 1989) and the general pricing literature (e.g. Gabor, 1988; Morris and Morris, 1990) indicate that successful price decision making is dependent on situational variables in dynamic environments. This calls for a contingency approach to export pricing, since the pricing process is far too complex to be amenable to a universal type of explanation (Diamantopoulos and Mathews, 1995). The variables in contingency theory (Zeithaml et al, 1988) blend well with the internal-external forces/export strategy/export performance framework of Cavusgil and Zou (1994). Contingency variables (which provide only limited or indirect opportunities for control by the firm) relate to internal and external forces, response variables (those that reflect decisions and actions taken by the firm) relate to export pricing dimensions, and performance variables (those that represent the outcome of such action, enabling an evaluation of fit between contingency and response variables) are accounted for by the firm's export marketing performance. Successful implementation of EPS depends on accurate identification of the contingency variables and the proper "fit" of pricing decisions and actions by the firm. A contingency approach to export pricing requires the proper identification of these components. As Hofer (1975) and Diamantopoulos (1991) show, dozens of factors can affect pricing strategy and, including all possible variables in future empirical research, would result in highly situation-specific studies. Therefore, for present purposes, the list must be condensed, but care must be taken to identify the most significant factors important in an export setting. To pinpoint the most critical contingency variables, in-depth interviews with international managers were conducted, following the suggestions of Bonoma (1985) and Eisenhardt and Bourgeois (1988). Specifically, 12 interviews with a diverse set of manufacturing exporters in the Midwest and Southern USA took place, utilizing open-ended questions regarding the export pricing strategies of these firms and the factors shaping these strategies. These firms were chosen not only because of the significant amount of exporting conducted, but also due to the disparate markets which they serve (European, Asian and LatinAmerican). Firm size (as a function of sales) ranged from US$10 million to over US$500 million. In all instances, the key informant was the manager in charge of overseas operations for specific products or product lines. These qualitative interviews highlighted critical variables and help
reduce reliance on theoretical reasoning and past findings in the development of our conceptual framework. This conceptual framework, illustrated in Figure 1, is designed to provide directions for future research in determining the best pricing strategies for export marketing managers. The key constructs address the relationships between export pricing strategy and the internal and external forces described by Tellis (1986) and extended by Cavusgil and Zou (1994). By integrating the research that links export strategy to export performance with the research that identifies pricing strategy as a determinant of marketing performance (e.g. Rao, 1984; Tellis, 1986), we argue that export pricing strategy affects the export marketing performance of the firm. In turn, selected internal and external variables are seen as antecedents to the EPS adopted by the firm. These antecedents can be categorized into three distinct groupings, incorporating a number of specific variables each: (1) firm and management characteristics, which include the international experience of the firm and its commitment to the export venture; Figure 1. (2) product characteristics, which comprise degree of standardization and age; and (3) export market characteristics, which include channel length, customer sophistication, regulatory and competitive intensity, foreign currency volatility, and rate of inflation. The details of these variables and their proposed relationships with export pricing strategy are discussed below, and specific propositions are developed. It should be noted that in this study we address only those variables that have been frequently identified in the literature to affect export pricing strategy, or those that were identified in our qualitative interviews by export managers to drive their pricing decisions. These variables are defined in Table I. We remained selective in inclusion of relevant variables, since excessive detail could result in an "almost endless, and thus unmanageable, listing of situational variables, providing little scope for comparison and generalization across settings" (Diamantopoulos and Mathews, 1995, p. 27); our concentration is only on those factors which make export pricing distinctive from domestic pricing. Export pricing strategy While export pricing is regarded by management as a strong determinant of performance and profitability, it is perhaps the most misunderstood and least effectively used competitive tool (Cavusgil, 1996). The literature does not offer any well-established measures or conceptualizations of export pricing strategy (EPS). In this study we define EPS as the means by which a firm responds to the interplay of
internal and external forces that affect export-pricing decisions in order to meet the goals of the export venture. The construct incorporates three basic dimensions: (1) management's price-setting philosophy; (2) price determination; and Table I. Table I. Table I. (3) pricing implementation. The literature supports this conceptualization, and our preliminary interviews with international managers confirm it. Within these dimensions lie the various alternatives available to the firm, including uniform pricing of products, market versus cost-based pricing and the centralization of the pricing decision within the organization. Export price-setting philosophy Export price-setting philosophy refers to the guiding principles used by management in its pricing strategy. These are reflected in a variety of managerial and environmental factors and address such issues as the pricing objectives of management, the competitive posture associated with export pricing, the control of the export-pricing decision within the organization, and the flexibility or rigidity of export-pricing procedures. Pricing objectives. Pricing objectives are the strategic and economic goals desired by management in pricing the product (Diamantopoulos and Mathews, 1995). Although the operationalization of export marketing performance indirectly captures these objectives, here we formally operationalize them within the strategy construct. Given that pricing behavior is purposive (i.e. seeks to achieve specific and conflicting goals), an EPS reflects not only export-- market factors but also the shortand/or long-term pricing goals of the firm, which themselves are a subset of overall corporate objectives (Morris and Morris, 1990). In this context, from the perspective of empirical analysis, Diamantopoulos (1991) argues that comparisons of pricing strategies are not in themselves instructive, unless differences in specific objectives pursued are taken into account, and that the objective functions of real world firms are multi-faceted rather than singular, "... which implies that any theoretical representation ... based on a single goal (whatever that goal may be) involves a
substantial (and potentially unacceptable) degree of abstraction from reality" (Diamantopoulos, 1991, p. 138)[1]. Moreover, the pricing objectives of the firm are not static and will change within the export market, as such factors as product age and competitive levels change (Engleson, 1995). It is critical to determine the firm's pricing objectives before proceeding to formal examination of export pricing (Diamantopoulos and Mathews, 1995). Morris and Morris (1990) list 21 different pricing objectives available to the firm. Following Samiee (1987), we classify them as profit (e.g. return on investment, profit growth) and competitive positioning (barriers to entry, matching competition, maintain/increase market share). Pricing objectives can be conflicting as well as complementary (increased market share brings increased profits, yet to increase market share the firm may have to experience losses in the short term by undercutting competitive price offers), as well as subject to hierarchical considerations regarding level of importance (see Paun and Albaum (1993)). Much of the conflicting nature in pricing objectives may be attributed to temporal issues, in that short-term objectives, from the pricing perspective, are not easily synthesized with long-term objectives (see Guiltinan and Gundlach (1996)). Individuals involved in the pricing of exports are interested in the long-term survival of the firm, which in turn is reliant on the ability of the organization to adapt to a variety of environmental pressures and constraints (see Thach and Axinn (1991)). The question of whether the objective of the firm is purely to maximize profits is further challenged in the export setting in that the firm often adopts a satisfactory profits approach in order to justify market participation and establish longer term relationships with satisfied customers (Monroe, 1990). Relationships between antecedent variables and export-pricing objectives have yet to be explored in the literature, so reliance on domestic and consumerrelated pricing studies is necessary to a certain degree. Diamantopoulos and Mathews (1994) demonstrate the relationships between a variety of antecedent variables and pricing objectives in domestic markets. Similarly, Nagle (1987) indicates that a number of variables (such as market growth and competitive intensity) affect individual pricing objectives. Specifically, as competitive levels within the export market increase, the firm must price its product at or near that of the competition in order to survive (Simon, 1995). If firms attempt to maximize return on investment or profit growth in competitively intense environments, then competitive price margins will detrimentally affect the attainment of these goals, so the firm must choose a price at or near that of rivals (Engleson, 1995). Pricing objectives will also change, as the product evolves from its introductory stage through growth and maturity, with profit-oriented pricing being standard for new products and more competitive pricing being standard for mature products (Morris and Morris, 1990; Porter, 1986). It should be remembered that exporters are often faced with different life-cycle scenarios in overseas markets from their domestic counterparts with the same product. Once new products become exposed to markets, competitors often enter with similar products and new process technologies that enable them to
compete on price, which prompts firms to re-orient their pricing policy (Monroe, 1990). This is supported by managerial comments during the qualitative interviews: Our product is the same as our competitors'. The only way to compete is on price and delivery reliability. Our effort is to maintain market share. A number of international economic factors affect export pricing objectives, particularly inflation and exchange rate fluctuations (Cavusgil, 1996). The underlying relationship between exchange rates and the prices of traded goods, or the exchange rate pass-through relationship, is a critical factor in determining prices (Athukorala and Menon, 1994). The relationship between the export market currency and the home currency of the exporter will affect the affordability of the exported product as well as the exporter's ability to raise prices and still reach sales targets. When the exporter's currency is weak, it will be able to stress price benefits, particularly when compared with in-- market competitors. When the exporter's currency is strong, it may resort to competitive pricing and/or engage in non-price competition by stressing quality and customer service (Cavusgil, 1988). Similarly, in preliminary interviews managers stated that high inflation rates in the export market will produce a "false elasticity" effect in that, even though the exporter's quoted prices of goods do not change, effective prices will be higher. This will limit the exporter's ability to pursue profit oriented pricing objectives, since the purchasing power of the buyers will be reduced. Given this background, the following proposition is offered: P1. Management is more likely to pursue competitive pricing objectives (as opposed to profit-oriented objectives) when: the competitive intensity of the export market is high; the product is mature in the export market; foreign currency volatility is high; and the inflation rate in the export market is high. Competitive posture. In the equations of supply and demand that influence price, the supply side includes competing firms within the industry willing and able to sell at different prices (Morris and Morris, 1990). Export markets are experiencing rapid rates of change, as technology, governmental regulations, and economic foundations shift (Simon, 1995). Often, this increases the differentiation across markets (see Sheth, 1985), while within a particular market the customer base is fairly homogeneous and serviced by several sellers with specialized technologies. When buyers are homogeneous, product differentiation becomes less critical, and sales are based on competitive prices (Tellis, 1986). This mandates constant monitoring of the competition's prices, and a philosophy of using price as a competitive tool. Price is determined solely on competitive moves; here exporters charge a price roughly equivalent to that of competitors. Complications arise if local competitors (i.e. those from the export market) remain unaffected by economic or regulatory shifts within that market, shifts which affect the exporter's price and not the local competition's. This is considerably different from domestic competitive environments where each
competitor is affected by the same economic changes, as is the buyer. In our preliminary interviews, exporters indicated that this was often the case: We base our prices on what our competition is doing, and try to keep a specified amount above or below the competitor's price. We base our prices on the competition's, and change the price as often as every order. Our price is either just below our competition's, or it is exactly the same, never above. Our distributor tells us what [the competition's] price is, because we've had a long relationship. International experience is positively related to export performance (Kirpalani and Macintosh, 1980) and, since pricing is a key factor in a firm's overall marketing strategy, the perception of export pricing as a competitive tool will be partly determined by the firm's experience in international markets and its emphasis on price versus non-price benefits. In addressing the characteristics of the finn, Katsikeas and Morgan (1994) found that more experienced firms perceive exportpricing activities as more problematic than less experienced firms, and that firms of all experience levels rank pricing issues very high in their export decisions. More experienced firms seem to realize the complexity of pricing and are willing to address it deliberately in formulating a competitive posture. According to Guiltinan and Gundlach (1996), firms can enact predatory pricing strategies that involve lowering prices to an unreasonably low or unprofitable level in order to weaken, eliminate, or block the entry of a rival, and this obviously deviates from traditional profit maximization objectives. Several motivations for low or below cost pricing exist, including volume sales and market share. Pricing that is designed to achieve long-term customer satisfaction or other volumeoriented objectives can be profit-oriented, because short-term profits may be traded for long-term gains (Guiltinan and Gundlach, 1996, p. 90). However, firms seeking these long-term gains must be committed to the venture to a degree that warrants these short-term losses; otherwise these losses cannot be recovered over time. The degree of importance management attaches to price as a competitive tool depends on whether the firm seeks competitive advantage by offering its customers a less expensive product than that of rivals or a differentiated product (Nagle, 1987). A firm offering a comparable product at a lower cost can increase sales via opportunistic pricing, but this advantage can only be maintained if costs can be controlled (Monroe, 1990). One method of controlling costs is by standardizing products, and firms that emphasize non-price benefits to the customer may not perceive price as a competitive tool. A superior product often enables the firm to profit from premium prices (Porter, 1986). Following the work of Jain (1989), the presence of heavy competition in the market may necessitate customization of export products. When this is not possible, however, the firm will be left to compete on price and other aspects of the marketing mix.
A weak exporter's currency will enable that firm to utilize price as a competitive tool. Those with weak domestic currencies often use price to build market share and combat competitors (Kotabe and Helsen, 2001). On the other hand, firms exporting to countries where the currency is depreciating face greater need to remain competitive in pricing (Cavusgil, 1988). Similarly, those export markets suffering from high inflation are conducive to using price as a competitive tool, since the importer is already burdened by increasing costs of goods manufactured in the export market, and the exporter can price his goods below local competitors with little effect on its own profit margins (Myers, 1997). This allows him to use price as a competitive tool. All this suggests: P2. Management is more likely to use price as a competitive tool when: the competitive intensity of the market is high; the international experience of the firm is high; commitment to the export venture is high; product standardization is high; and foreign currency volatility is high. Decision control. The level within the organizational hierarchy at which the pricing decision is made plays a critical role (Abratt and Pitt, 1985; Clague and Grossfield, 1974). Who is responsible, or the degree of price-setting autonomy outside upper management, is a key determinant of an export pricing strategy (Baker and Ryans, 1973). The salesforce tends to concentrate on competitive factors that affect sales volume, while management usually is concerned with profit margins above the total cost of the product (Myers, 1997). As noted, the sophistication of buyers in the export market will often differ drastically from domestic customers (Kotabe and Helsen, 2001). Thus, exporters must deal with different levels of customer sophistication in each market. Preliminary interviews indicate that, as customer sophistication increases, the ability of the salesforce to determine the actual end-price of the product becomes critical. This point-of-sale decision making increases the firm's responsiveness to well-informed customers (Anderson, 1985) and, while sales force personnel are rarely aware of the changing costs of input prices (Grove et al., 1992), more sophisticated buyers demand the service that a saleforce provides, including the ability to make on-the-spot price decisions in order to meet buyer needs. Sophisticated customers are also more likely to have price objections, and these objections are best addressed by the salesforce personnel (Winkler, 1983), meaning that decision control is better left to the individual closest to the point of sale. In the domestic marketing literature, the effect of channels and distribution processes on pricing decisions has received extensive attention (Stem and El-Ansary, 1977). In the international environment, however, relatively little empirical work has been reported. An exception is Williamson and Bello (1992), who examined export management companies (EMCs) and the pricing methods used in transactions between EMCs and domestic producers. Following this study, it is evident that the services offered within the channels in overseas markets, as well as the complexity and development of those channels, also will influence pricing
strategy. Lengthy and dynamic international distribution channels are susceptible to export-price escalation (Cavusgil and Zou, 1994); without in-market or close-tomarket decision making, the possibility of overpricing exists. Exporters must maintain price levels in markets where the large number of middlemen in the distribution channel often forces prices above competitive levels (Kotabe and Helsen, 2001). Control over the final price often decreases, as the product travels though the distribution channel, depending on the relationship between the channel members and the exporter (Bowersox et al., 1992). Price decision control will therefore be less centralized in order to control price escalation inside the market. This understanding of added in-market price by lower level management increases the firm's ability to combat this escalation (see Cavusgil (1988)). When faced with external uncertainty, firms are better off internalizing transactions and allowing the absorption of uncertainty through specialized decision making within the firm (Aulakh and Kotabe, 1997). Pfeffer and Salancik (1978) argue that looser, flexible structures are more effective under conditions of high external uncertainty: this ability to respond to uncertainty is facilitated through salesforce autonomy. External uncertainty, of course, can take the form of competition or volatile economic conditions in the export market. High competitive intensity in the export market increases the need for quick decisions, dictating a fluid and simple pricing method by those familiar with the market and the customer (Engleson, 1995). This is possible only if lower-level managers and sales representatives are given autonomy. Concurrently, they must be familiar with customers, distributors, and competitive levels within their area of responsibility (Winkler, 1983), a familiarity that results from significant exposure to the export market. For the same reasons, markets with volatile fluctuations in exchange rates or those suffering from inflation problems will necessitate local pricing control, with close to market decision makers changing prices as currency fluctuations and inflation rates modify the purchasing ability of buyers. Thus: P3. Control of the export-pricing decision by high-level (headquarters) management is more likely to increase when: customer sophistication is low; the distribution channel is short; foreign currency volatility is low; the inflation rate of the export market is low; and competitive intensity within the export market is low. Pricing flexibility. Pricing flexibility is defined as the willingness to change prices based on special circumstances, versus rigidly enforcing a set price. Traditionally, the practice of an annual pricing review has been consistent with the literature (Diamantopoulos and Mathews, 1995), which posits that prices should be changed no more than once a year, so that customers can make their own costing and pricing plans (Garda, 1984). This policy, however, can create problems for the firm such as forward buying by distributors who anticipate the review; and failure to effectively "pass through" exchange-rate induced margin changes in export market currency terms (Cavusgil, 1996; Clark et al., 1999). With the increasing competitive intensity of global markets, it is imperative to be more flexible, to change prices based on special circumstances, such as competitive price shifts and currency rate changes.
Economic fluctuations will affect the purchasing power of buyers, particularly as foreign currency valuations between the buyer-seller dyad change (Piercy, 1981). Therefore, in order to maintain sales volume firms must be flexible in setting prices. It is apparent from managerial responses that economic volatility in the export market plays a significant role in pricing activities: The conditions in our markets are constantly changing. Overnight we can be priced out of the market, because our products become too expensive. Unless we change our price according to the Peso, our buyers can't afford our products. The inflation rates in our market [Brazil] are often so out of hand that we change our prices every month. Unauthorized distribution is a big problem. When currency rates fluctuate a lot, we inevitably will find our buyers going next door [to another market] to buy our product from a cheaper distributor. While we have a smooth relationship with our importer, we know that he is very familiar with our cost structure and, that if we raise prices too high, he will attempt to find another supplier. Farley et al. (1980), who analyzed marketing decision systems within two European industrial firms, report that prices and volumes of each product were under continuous review, since conditions constantly changed in many end-use markets. Through forecasting, firms develop ongoing systems for both volume planning and pricing; these feedback systems are triggered by perceived changes in market conditions (Engleson, 1995), and these changes take several forms. As competitive levels fluctuate within a market, exporters must constantly monitor their prices in relation to the prices and offerings of competitors (Cavusgil, 1988). Volatile exchange rates also affect the exporting firm's need to occasionally change prices (Cavusgil, 1988). Firms exporting to markets where the currency widely fluctuates must examine their pricing policy frequently. Similarly, high inflation rates in the export market will necessitate frequent review of prices. As is evident from the managerial responses, inflation rates can rapidly erode the ability of buyers to pay export prices, and firms will have to reduce prices according to levels of in-market inflation fluctuation. Therefore: P4. Management is more likely to use flexible than rigid pricing when: the competitive intensity of the export market is high; foreign currency volatility is high; and the inflation rate in the export market is high. Export-pice determination Export-price determination refers to the specific methods employed to calculate and achieve the final price. Many methods are available, since managers need more than one option for pricing various products in various competitive environments. A wide range of organizational and environmental factors affect the methods) used:
Specifically, it has been established that the more sophisticated pricing formulae are typically used by large firms ... It has also been observed that pricing methods vary across different industry sectors, product types, and production and distribution methods (Diamantopoulos, 1991, p. 151). We will concentrate on the methods considered strategically manipulable by the firm; that is, monopsonistic pricing will not be included in our discussion. Price determination can be broadly categorized into two groups: (1) methods that are cost based (i.e. cost-plus and marginal-cost pricing); and (2) market based (i.e. market, trial-and-error, penetration, and value pricing). The market-based approaches focus on competition, customer demand, or both (Morris and Morris, 1990). Of these two categories, cost-based pricing appears to be much more prevalent Monroe, 1990): This tendency is one of the great ironies of business, and reflects a general level of naivete among managers responsible for pricing decisions (Morris and Morris, 1990, p. 22)[2]. Cost-based versus market-based export pricing. According to Cavusgil (1988), product and resource costs influence the pricing strategies of the firm. Costs are frequently used as a basis for price determination, largely because they are easily measured and provide a "floor" under which prices cannot go in the long term (Simon, 1995). Most exporting companies focus on a cost-centered pricing strategy, particularly the cost-plus method (Hunt, 1969; White and Niffenegger, 1980). According to Backman (1953, p. 148), "the graveyard of business is filled with the skeletons of companies that attempted to base their prices solely on costs." Given that firms must also focus on two other key aspects of price: demand and competition (Monroe, 1990), which are particularly complex in international environments, this observation is especially ominous to exporters. The popularity of cost-based strategies reflects the fact that they are easy to implement and manage; setting a price that covers costs and generates a fixed profit margin makes intuitive sense to the manager (Morris and Morris, 1990). Often, exporters will simply place the same price on their exported products as that of those sold domestically (Seifert and Ford, 1989). Cost-based pricing strategies are indicative of profit-oriented firms, often with short-run expectations within the market (Cavusgil, 1996). This is similar to a "skimming" strategy (Monroe, 1990), yet, while the motives of profit-taking firms may be the same domestically as internationally, the opportunities which allow these firms to profit often find a different genesis in that exporters benefit from the cross-market dyadic diseconomy which allows them to take profits in times of economic fluctuations between markets. These are opportunistic firms that take advantage of market inefficiencies such as monopolistic structures or new
technologies within the export market (Myers, 1997). The objectives are shortterm. Price is determined by strict cost-plus or marginal cost procedures, with little interest in market, customer or competitive factors. This is evident in many of the responses from managers when asked to describe their pricing methods: Our price is based on the domestic price. We typically price our products based on a standard percentage mark-up. We will until our profits decrease. Our prices are based primarily cost-plus or 30 percent off suggested retail. We do this in every market because we haven't seen any reason to adjust our approach. We move in and out of a variety of markets, and price our products as high above costs for as long as we can. When profits begin to decline, we move on to other markets. Our prices, both domestic and export, are based on cost plus added amount for profit margin. No special pricing for our exports. Despite the prevalence of a cost-based perspective to pricing exports, there is an alternative. By incorporating market, competition, and customer related variables into their pricing decisions, exporters can address a number of potentially confounding issues. This market-based pricing is particularly critical, given the discussion on environmental determinants of pricing in an international environment, and it is at times difficult to understand why exporters do not incorporate these variables into their pricing strategies. In our contact with export managers, however, several indicated that this strategy is the foundation of their pricing efforts, and for a number of critical reasons: With our exports, we are continuously under suspicion of dumping our products. We have to take care not to violate the local regulations on this issue, and ... we have to compete on service, not price. We develop a base price acceptable to our distributors. Deviations are made based on specific situations in the market, such as new import taxes and volume limitations. Based on governmental procedures, we must sell our product at a higher base price to our foreign customers. We try to remain price-competitive in our terms of trade. We have to manipulate our prices based on what the import regulations let us do, and they are constantly changing. If we have to price above our local competitors, then we try to offer volume discounts or work with the buyer in their currency of choice. Pricing methods such as penetration pricing are based on the market, and focus on the customer and/or competition (charging a price roughly equivalent to that of
competitors or what the market will bear). In more price-sensitive markets, strategies based on the demand and competitive dimensions of the market are considered to be more suitable than cost-based pricing (Morris and Morris, 1990). Piercy (1981) found that certain UK exporters price according to the individual target market, almost two-thirds emphasize a market-based approach, due to the price focus of competitors. Intense competition often dictates market pricing (Diamantopoulos, 1991), and firms involved in highly competitive export markets often have little price discretion, as what they can charge will be established by the market, especially if they are not a market leader (Engleson, 1995). Import policies and trade barriers in international markets have a significant effect on export-pricing decisions. Price escalation due to import barriers may eat away profit margins (Cavusgil, 1996). With the increased tension between nations over trading policies, such issues as intellectual property rights (Maggs and Rockwell, 1993), non-tariff barriers (Frank, 1984), and antidumping legislation have assumed considerable importance and have an obvious connection to export pricing (Joelson and Wilson, 1992). For example, antidumping laws regarding specific products will affect pricing decisions, since the simple cost-plus method may result in a price too low to comply with market regulations. Export markets with these price-window regulations dictate market pricing. Caught between high base costs and the need to charge break-even prices, firms often cannot compete in highly price-sensitive markets. Some buyers will have a low reservation price for the product in that they are pricesensitive or do not need the product urgently enough to pay the price other buyers pay (Tellis, 1986). Economic and behavioral foundations within the market affect customer reactions to price and, with sophisticated customers, i.e. those aware of potential alternative suppliers and prices, exporters face increased challenges in that customers will have search costs exceeding those within the market (Cavusgil, 1996). This means that the opportunity costs associated with finding an overseas supplier may exceed the benefits associated with that relationship (Anderson and Gatignon, 1986). Transaction costs associated with investment risk, currency exchange, or switching costs also factor in to the buyers' decisions (Williamson, 1975). Mostly, however, firms employing a market-based EPS focus on the customer's ability to pay for the goods, or the value placed on that good, or both. This perspective is evident in several comments made by export managers: Price is always based on the individual customer. They request certain sizes, colors, etc., then we price based on the information they provide us. We have to constantly watch the exchange rates. If the dollar gets too strong, our buyers will go to local suppliers. Information from our agents and meeting with our overseas customers allow us to constantly monitor the market. Within the literature, studies show that external uncertainty allows negative information asymmetries to develop and provides the opportunity for outside
forces to behave opportunistically (Klein et al, 1990). In export markets, external uncertainty exists in the form of economic fluctuations, particularly in volatile exchange relationships and rising inflation rates. Those exporters with weak homecountry currencies often use price to build market share and combat competitors. On the other hand, firms exporting to countries where the currency is depreciating face greater need to remain competitive in pricing (see Kublin, 1990). Frequent volatility of currency suggests that exporters may find themselves benefiting from a weak currency one month and struggling with an over-valued currency the next. These exporters must be vigilant in their pricing by concentrating on the market's ability to purchase during exchange rate fluctuations, understanding that cost-based pricing techniques can send the price of the product above the purchasing ability of the buyer, or result in lost opportunities if prices are not adjusted accordingly (Assmus and Wiese, 1995). High rates of inflation in the export market will also urge managers to remain market-oriented in their pricing, because the buyer's ability to purchase in periods of increasing inflation rates will limit his ability to purchase products from overseas, due to home currency devaluation (see Knetter (1994)). Therefore: P5. Management is more likely to use market-based than cost-based export pricing when: the competitive intensity of the export market is high; customer sophistication is high; the regulatory intensity of the export market is high; foreign currency volatility is high; and the inflation rate in the export market is high. Export pricing impLementation Day-to-day price management involves tactical moves that allow the firm to combat or take advantage of anomalies within the export market. Export pricing implementation comprises the degree of coordination the firm seeks in pricing across markets and the choice of currency used in price quotations. Price coordination. Within the international environment, a great deal of pressure is being placed on firms to align or coordinate their prices (Diller and Bukhari, 1994). One of the primary reasons for this pressure is gray market imports. Defined as selling trademarked products through channels not authorized by the trademark holder (Myers, 1999; Duhan and Sheffet, 1988), gray marketing is in effect a type of arbitrage brought about by inflexibility in the face of price and exchange-rate fluctuations across markets. The volume of gray market imports is significant, particularly in premium products and brands (Assmus and Wiese, 1995; Cavusgil and Sikora, 1988). The situation sometimes results from the unavailability of goods in certain markets and the ease of product movement across borders, but most often the cause is a substantial price difference between or among national markets (Myers, 1997). The problem is aggravated, as the firm's presence in economically diverse markets increases and as the margin between prices in domestic and adjacent markets tempts unauthorized sellers to cross borders and sell products at higher prices than at home (Assmus and Wiese, 1995). Firms attempt to coordinate
their product prices uniformly across all markets in order to curtail gray market imports. This approach is difficult, however, when inflation or devaluation of local currency results in prices beyond the purchasing power of indigenous customers but not those in a neighboring economy. Customer satisfaction can be better met by adapting the product to an individual market (Douglas and Craig, 1989), but the costs of adaptation and the advantages gained will influence the export price of the product (see Samli and Jacobs (1994)). The standardization/adaptation issue has long been debated in terms of market coverage, capacity utilization, specialty products, and market niches (Samiee and Roth, 1992). Product adaptation incurs costs in developing alternative variations (Cavusgil et al., 1993), and these must be reflected in the export price. Managing a series of adapted products in multiple markets calls for pricing decisions to be made close to those markets, which decreases the effectiveness of a pricing coordination strategy. Concurrently, sophisticated customers familiar with competitive prices and experienced in purchasing will demand quick pricing decisions at the market, not upper-- management, level. Thus: P6. Management is more likely to seek price coordination across its export markets when: foreign currency volatility is high; and product standardization is high. Currency choice. With an increase in the global sourcing of raw materials, components, and other products by firms, exporters are increasingly compelled to price their products in non-domestic currency denominations (Samiee and Anckar, 1998). The choice of currency, then, has become increasingly critical in securing export contracts, as well as maintaining or increasing export market share (Samiee and Anckar, 1998; Donnenfeld and Zilcha, 1991)[3]. The currency a firm chooses to use in its export transactions is determined by a number of variables. Along with product cost, the degree and caliber of competition are perhaps the most important factor (Abratt and Pitt, 1985), and most companies will adjust price or other elements of their total offer in order to meet competitive situations (Farley et aL, 1980; Lecraw, 1984). This means that flexibility regarding the currency used for the transaction is critical to remaining competitive. In many cases the exporter has no choice but to offer currency terms comparable with those of competitors (Diamantopoulos and Mathews, 1994; Piercy, 1981). This is evident in the statement of an exporter of machinery to Latin America: In highly competitive markets, we'll price our goods in whatever currency the customer wants. This is consistent with past studies (e.g. Javaid, 1985) that, in highly competitive markets the buyer's negotiating position improves, and exporters are faced with increasing demand to invoice importers in their domestic currencies. In their recent study of currency choices among firms, Samiee and Anckar (1998) note that firms dealing in currencies other than their domestic currency face greater
financial risks. Greater involvement and experience in exporting afford the firm better knowledge of markets, customers, and risks involved in dealing with local currencies. As management develops more skill with complex exchange rates, it can price exports in various currencies, as dictated by the customer. Experienced exporters are inclined to use currencies other than that of their home market in their trading (Cavusgil, 1988). Also, in markets with high foreign currency volatility, the exporter may be forced to choose currencies other than those customarily used (e.g. Bilson, 1983), making it easier for the buyer to purchase products with more affordable, or available, currencies. Therefore: P7. Management is more likely to use third-country and/or indigenous customer currencies in export pricing when: the competitive intensity of the export market is high; the international experience of the firm is high; and foreign currency volatility is high. The relationship between EPS and export Performance Aaby and Slater (1989) show that an export marketing strategy and management's ability to employ it determine export performance. When this strategy is aligned with the export venture as defined by the characteristics of the firm, product, industry, and export market, positive performance can be expected (Anderson and Zeithaml, 1984; Venkatraman and Prescott, 1990). Consistent with Cavusgil and Zou (1994), export performance is conceived at the product-market level, and it incorporates both economic (e.g. sales and profits) and strategic (e.g. competitive response, market expansion) outcomes in the market. Accordingly, export marketing performance refers to the extent to which a firm's economic and strategic outcomes are enhanced when selling a product in a foreign market[4]. As noted, the use of purely cost-based pricing strategies has been associated with substandard firm performance. Managers who see pricing as no more than a markup over costs may price the product out of the market. This is particularly true in international environments, where rapidly changing market conditions can result in price increases beyond the control of management (Myers, 1997). Furthermore, White and Niffenegger (1980) found that pricing decisions are centralized in firms using cost-based strategies, which implies a degree of rigidity and inertia in adapting to market changes and the lack of an organized market research program. Several authors (Douglas and Craig, 1989; Quelch and Hoff, 1986; Walters and Toyne, 1989) have described competitive pricing strategies as one way in which firms can adapt offerings to fit the demands of foreign markets. This theme of increasingly competitive export environments is prevalent within the international marketing literature, and following this perspective it is expected that export performance is positively influenced by competitive export pricing. Similarly, and following Porter (1980, 1986) and Ohmae (1990), among others, an increasingly competitive and dynamic international business environment will reward flexible and responsive marketing strategies rather than more static practices. This
flexibility calls not only for a change in traditional pricing philosophy but also for frequent pricing policy reviews to monitor market and competitor conditions. A competitive environment mandates a focus on customers' satisfaction and their desire for the use of certain currencies in transactions. As international business transactions increase world-wide, customer sophistication will also increase, dictating a more buyer-oriented approach to marketing export products (Kotabe and Helson, 2001). This mandates greater autonomy of pricing decisions within the salesforce and other entities close to the point of purchase, and less centralization of upper-level management pricing decisions. Finally, as firms proactively or reactively enter multiple export markets to enhance their competitive position, the issue of gray market imports must be addressed (Assmus and Wiese, 1995). The rapid influx of businesses exporting to multiple markets (Aaby and Slater, 1989), and the demand for increased sales volume to take advantage of scale economies (Porter, 1980), will mandate greater vigilance in coordinating prices to avoid unauthorized imports. The greater the coordination, the greater the profits enjoyed by the exporting firm. The exploratory interviews also revealed some relevant insights on the choice of invoiving currency. While most managers avoid using importer or third-country currencies, some companies tolerate greater risk in order to gain competitive advantage over rivals. The ability to utilize multiple currencies also affords the firm some flexibility by proactively managing exchange rate shifts (Samiee and Anckar, 1998). Plus, as overseas buyers increase their understanding of cross-national trade, they may become less willing to bear currency risks themselves, particularly in highly competitive markets, where exporters must diligently protect key accounts from other firms. A willingness to invoice in currencies other than the exporter's only increases the chance of enhancing customer portfolios and increasing sales. All this suggests: P8. Performance of the export market venture is enhanced when: the firm's use of price as a competitive tool is high; the use of market-based pricing is high; the degree of senior management control of pricing is low; the degree of price flexibility is high; the degree to which management seeks price coordination across country markets is high; and the use of customer-preferred currency in pricing is high. Conclusion and directions for future research Traditionally, many firms have treated the pricing of exports as an afterthought. Similarly, researchers have considered export pricing a minor aspect of overall pricing strategy. How pricing enhances the competitive positioning of a product or the economic success of an export venture has yet to be explored, despite general agreement that it is a critical component of an export marketing strategy. Today, managers must take a more systematic and proactive approach to setting prices for export markets, due to an increasingly competitive global environment, a need for expansion into foreign markets to augment market share and economies of scale, complex government regulations world-wide, and gray market considerations.
This article sets the stage for a more analytical and deliberate approach to export pricing by: * identifying relevant variables as antecedents to an EPS and developing a conceptual framework for addressing their relationship to export performance; and * advancing research propositions that should allow empirical tests of these relationships in future research. From a policy standpoint, the evaluation of both external environmental factors and internal organizational characteristics, as initially described by Cavusgil and Zou (1994), is critical for managers exporting to overseas markets. They must understand that an EPS is determined by a dynamic set of variables and that a successful venture requires thoughtful and timely response to constantly shifting economic, competitive and customer-related forces. Future research can advance knowledge of export pricing in at least two ways. First, our conceptual framework identifies a number of antecedent variables in the relationship between pricing strategy and performance. Yet, the list of situational factors involved in decision making is almost endless (Achrol et al., 1983). We have limited our attention to those considered most relevant in an export context in order to create a generalizable and manageable framework, but future studies may indicate others or a different emphasis. Second, we have concentrated solely on the structural aspects of export pricing to upper- and midstream customers in the value chain rather than to end-users. Future work could focus on export prices from the perspective of ultimate customers. At the operational level, research is needed on the complex interrelationship between export pricing and performance as well as on the extent to which management strategy choices and pricing practices are responsible for firm performance. Our study has provided a foundation for exploration of: * "best" practices in export pricing; * the role of the firm, product, industry, foreign market, and other environmental factors in setting EPS; and * how managers should make decisions about export pricing. It is hoped that scholars will respond to the call for more work in this important area. In this context, Table I presented a list of relevant constructs, suggested measures, and supporting literature. Empirical research along these lines would give us a more comprehensive picture of the export-pricing environment and allow a more exact evaluation of the relationship between EPS and performance. [Footnote]
Notes [Footnote] 1. Much of the discussion regarding pricing objectives of the firm is based on the work of Diamantopoulos (1991), whose analysis and discussion of this complex area are by far the most comprehensive within the management-oriented pricing literature (see also Diamantopoulos and Mathews (1995, pp. 48-61)). 2. Here we view cost-based and market-based export pricing to be dichotomous variables. While market-based pricing does often incorporate cost factors in price determination, it is distinct in that market and customer related issues drive the determination of price. Costbased pricing is driven solely by the underlying costs of the product. 3. When discussing the effects of foreign currency volatility on export pricing strategies, we follow the work of Mathur and Loy (1984) and assume that the efficiency of the firm is not such that currency pass-through problems are alleviated through the use of foreign currency futures and other strategies. [Footnote] 4. This article posits that EPS is determined by internal forces, such as firm and product characteristics, as well as external forces, such as industry and export market characteristics. EPS mediates between these forces and export performance; it partly determines the success of the venture. A significant amount of research has shown, however, that several direct effects between internal/external forces and performance can be expected. Cavusgil and Zou (1994) found that international competence, managerial commitment, and the marketing decision variables have a direct effect on export performance. Studies of export pricing also indicate that international competence and managerial commitment will directly affect performance. Similarly, in the strategy literature, environmental uncertainty (the degree of dynamism and unpredictability) has been shown to affect performance (Miller and Droge, 1986; Zeithaml et at, 1988). Since this paper concentrates on the EPS of the firm, we do not include these linkages in the framework; however, it is understood that these relationships do exist. [Reference] References [Reference] Aaby, N.-E. and Slater, S.F. (1989), "Management influences on export performance: a review of empirical literature, 1978-1988", International Marketing Review, Vol. 6 No. 4, pp. 7-26. Abratt, R. and Pitt, L.F. (1985), "Pricing practices in two industries", Industrial Marketing Management, Vol. 14, Summer, pp. 301-6.
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[Author Affiliation] University of Oklahoma, Norman, Oklahoma, USA S. Tamer Cavusgil [Author Affiliation] Michigan State University, East Lansing, Michigan, USA, and Adamantios Diamantopoulos Loughborough University, Loughborough, UK
Indexing (document details) Subjects: Studies, Pricing policies, Exports, Multinational corporations, Marketing management Classificatio 9130 Experimental/theoretical, 1300 International trade & foreign n Codes investment, 9510 Multinational corporations Author(s): Matthew B Myers profile, S Tamer Cavusgil profile, Adamantios Diamantopoulos Matthew B. Myers University of Oklahoma, Norman, Oklahoma, USA S. Tamer Cavusgil Michigan State University, East Lansing, Michigan, USA, and Adamantios Diamantopoulos Loughborough University, Loughborough, UK Document types: Feature
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Publication European Journal of Marketing. Bradford: 2002. Vol. 36, Iss. 1/2; pg. title: 159, 30 pgs Source type: Periodical ISSN: ProQuest document ID: Text Word Count 03090566 203736691
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7.) PRICING
Countries of Interest (Markets of Entry) Argentina Chile Brazil
Factors influencing the degree of international pricing strategy standardization of multinational corporations Marios Theodosiou, Constantine S Katsikeas. Journal of International Marketing. Chicago: 2001. Vol. 9, Iss. 3; pg. 1, 18 pgs Abstract (Summary) In response to certain important gaps identified in the global marketing literature, a study investigates the pricing strategies followed by manufacturing subsidiaries of multinational corporations. Specifically, it attempts to identify the factors that play an important role in determining the degree of international pricing strategy standardization. The findings suggest that the extent to which multinationals standardize their international pricing strategies depends on the level of similarity between home and host countries in terms of customer characteristics, legal environment, economic conditions, and stage of the product life cycle. The study highlights implications of the findings for business practitioners and discuss future research directions along with the limitations. Jump to indexing (document details) Full Text (6445 words) Copyright American Marketing Association 2001 [Headnote] ABSTRACT
[Headnote] In response to certain important gaps identified in the global marketing literature, the focus of this inquiry is an investigation of the pricing strategies followed by manufacturing subsidiaries of multinational corporations. Specifically, the authors attempt to identify the factors that play an important role in determining the degree of international pricing strategy standardization. The findings suggest that the extent to which multinationals standardize their international pricing strategies depends on the level of similarity between home and host countries in terms of customer characteristics, legal environment, economic conditions, and stage of the product life cycle. The authors highlight implications of the findings for business practitioners and discuss future research directions along with the limitations of the study.
Increasing liberalization, interdependence, and competition in world economies have accelerated the need for multinational corporations (MNCs) to develop effective global strategies in their endeavor to achieve sustainable competitive advantage in international markets (Samiee and Roth 1992). Marketing has played a significant role in the advancement of the field of international business; marketing strategy constitutes a critical component of a firm's global strategy (Zou and Cavusgil 1996). The development of optimal programs for global markets is of vital interest to business managers who view international operations as a means of boosting corporate growth, improving competitive
position, strengthening financial performance, and ensuring company survival and longterm viability in a highly globalized marketplace. In this context, the extent to which elements of the marketing program should be standardized across markets or adapted in order to accommodate different foreign market conditions, requirements, and preferences has received focal research attention at both the conceptual and the empirical level. The approach an MNC adopts has important implications because (1) it influences the MNC's ability to match its offerings effectively with the overseas market environments in which it operates, (2) it affects its long-term direction with respect to international operations, and (3) it determines the areas that should be prioritized in global resource allocation decisions (Jain 1989). Notwithstanding the long-standing interest in and many articles published on the topic, a review of the pertinent literature illustrates that scant attention has been devoted to investigating drivers of international pricing strategy standardization (Samli and Jacobs 1994). The vast majority of studies have focused on promotion (e.g., Harris 1994; Harvey 1993), product (e.g., Hill and Still 1984; Walters and Toyne 1989), and to a lesser extent distribution (e.g., Rosenbloom, Larsen, and Mehta 1997) aspects of the international marketing program. However, understanding the elements that influence the extent of standardization of international pricing strategy is vital, because standardization can affect firms' revenue and profitability levels and determine a product's foreign market positioning (Czinkota and Ronkainen 1998). Furthermore, previous standardization studies have commonly been conducted at the headquarters level, and the perceptions and attitudes of subsidiary managers have largely been ignored. Nevertheless, subsidiaries play an important role in international marketing strategy formulation and implementation as a result of their closeness to the market and better understanding of local conditions. In view of these limiting empirical considerations, the primary interests of this investigation focus on the pricing strategies MNCs follow. Because the key consideration in international business operations is whether the marketing strategy should be standardized or adapted, we consider international pricing strategy along the standardization-adaptation continuum (Cavusgil and Zou 1994). Specifically, this empirical inquiry aims to investigate the factors that play an important role in influencing the degree of international pricing strategy standardization from the standpoint of subsidiary managers. The study begins with an overview of the standardization versus adaptation debate. This is followed by an examination of the factors that are potentially associated with pricing standardization and the development of specific research hypotheses. Next, we specify the research method employed, and then present and discuss the results of the study. Finally, we highlight managerial implications of the findings and limitations of the study, along with directions for further research. The degree to which international marketing programs must be standardized or customized has been a contentious issue for more than three decades now. A review of the pertinent literature identifies three schools of thought: the two extreme opposites of
complete standardization versus complete adaptation and the "middle-of-the-road," or contingency perspective. These perspectives are examined next. The arguments in favor of marketing program standardization emphasize two main aspects. The first involves the drivers of standardization, defined as the developments in the international business environment that make standardization a feasible, or even inescapable strategy. The second aspect refers to the potential advantages that may result for a company that pursues a strategy of international marketing program standardization, advantages that make standardization a desirable alternative. Technological developments in the areas of communication and transportation, as well as increasing international travel by tourists and businesspeople, are considered driving forces behind the creation of a global village and thus a global marketplace (e.g., Elinder 1965). In a controversial article, Levitt (1983, p. 95) claims that in this new commercial reality, people around the world have the same needs and desires and that "almost everyone, everywhere, wants the things they have heard about, seen or experienced through the new technologies." Similarly, Ohmae (1985) refers to the emergence of the Tridians: the residents of Japan, the United States, and the European Union. These people have similar academic backgrounds, income levels, lifestyles, uses of leisure time, and aspirations; as a result, 600 million consumers in all parts of the Triad have strikingly similar needs and preferences. Other drivers of standardization discussed in the literature include the need of international firms to serve their multinational customers (Buzzell 1968; Douglas and Wind 1987), regional economic integration (e.g., North America and the European Union) (Walters and Toyne 1989), and the growth of international market segments with similar needs and preferences (Yavas, Verhage, and Green 1992). Proponents of standardization also emphasize several important benefits associated with the pursuit of this strategy. The most significant advantage of standardization is its contribution to the achievement of economies of scale and cost savings in production, research and development, and marketing (e.g., Keegan 1969). By fully exploiting the potential for economies of scale in all value-adding activities through marketing program standardization, international firms will be in a position to gain a significant advantage over their competitors by selling high quality products at lower prices (Levitt 1983). Other advantages of standardization proposed in the literature include the potential for rapid introduction of new products in international markets (Samiee and Roth 1992; Walters and Toyne 1989), the presentation of a consistent image across markets (Harvey 1993), the ability for worldwide exploitation of new and innovative ideas (Buzzell 1968; Quelch and Hoff 1986), and better coordination and control of international operations (Douglas and Craig 1986). The adaptation school of thought emerged essentially as a reaction to the arguments put forward in favor of standardization. First of all, many academics expressed their disagreement with Levitt's (1983) argument about a worldwide homogenization in needs and preferences, viewing it as overly simplistic, myopic, and contrary to the marketing concept (e.g., Boddewyn, Soehl, and Picard 1986; Douglas and Wind 1987). According to these authors, no hard evidence can be produced in support of Levitt's thesis (Douglas
and Craig 1986; Onkvisit and Shaw 1990; Wind 1986). Cross-cultural empirical research has found significant differences in customer characteristics, preferences, and purchasing behavior among different countries (e.g., Diamantopoulos, Schlegelmilch, and Du Preez 1995). Second, critics of standardization have questioned the significance of economies of scale and the cost savings underlying this approach. On the one hand, technological developments in flexible manufacturing systems and computer-aided design and manufacturing facilitate production of customized products without major cost implications and reduction in the minimum efficient scale of production (Douglas and Wind 1987; Walters and Toyne 1989). On the other hand, it has been suggested that certain industries (e.g., packaged consumer goods) are less susceptible to manufacturing and research and development economies (Quelch and Hoff 1986). Moreover, several authors have claimed that even when cost savings can be made, their effect may not be significant if a large proportion of the total cost is determined by factors on which standardization has no impact (e.g., cost of raw materials and labor) (Douglas and Craig 1986). Third, according to critics of standardization, there is no evidence to suggest that customers have become more price conscious or that they are willing to trade off specific product features for lower prices. It has been argued that low price positioning is a vulnerable strategy that may not lead to the achievement of sustainable competitive advantage (Douglas and Wind 1987; Wind 1986). Fourth, the decision whether to standardize does not depend on managerial discretion alone. Certain external (e.g., environmental, market, industry) and internal (e.g., organizational structure and processes) factors may limit the degree of standardization that a firm is able to apply (Boddewyn, Soehl, and Picard 1986). Such factors are responsible for mandatory adaptations, defined as the adaptations a company is obliged to make, because of either legislation and allied governmental regulations or inescapable and uncontrollable marketplace realities (Hill and Still 1984). Furthermore, some authors have indicated several important benefits that are likely to result from adapting international marketing programs to local market conditions. These include deeper penetration of foreign markets and thus increased market share and sales volume for the firm (Cavusgil, Zou, and Naidu 1993); enhanced motivation and morale of local managers (Douglas and Wind 1987; Quelch and Hoff 1986); and augmentation of firms' capabilities in analyzing and understanding foreign markets, monitoring market developments overseas, and quickly responding to shifts in customer preferences (Craig and Douglas 1996). Recent standardization literature has followed a more fruitful research avenue by supporting the contingency perspective of international marketing (e.g., Cavusgil, Zou, and Naidu 1993). According to this perspective, the difference between standardization and adaptation is in degree rather than in kind, and the two perspectives are viewed as occurring along a continuum on a bipolar scale (Onkvisit and Shaw 1987). Therefore, the
challenge facing international marketing managers is to decide which marketing-mix elements they should standardize or adapt, under what conditions, and to what degree (Buzzell 1968; Jain 1989). The critical issue in designing international marketing strategies in the framework of contingency theory is to identify contextual factors that determine the appropriate degree of marketing program standardization and determine which individual marketing-mix elements are influenced by each factor and to what extent. In response to this challenge, academic researchers have examined the factors that play an important role in the determination of marketing program standardization, and several classificatory schemes have been proposed (e.g., Cavusgil, Zou, and Naidu 1993; Jain 1989; Johnson and Aruthanes 1995). A review of the extant literature suggests that these factors can be organized into four broad categories: (1) macroenvironmental factors, including economic, legal, cultural, physical, and demographic elements (Douglas and Wind 1987; Jain 1989); (2) microenvironmental factors, such as customer characteristics, attitudes, and behavior (Jain 1989); the structure and nature of competition (Cavusgil, Zou, and Naidu 1993; Ozsomer, Bodur, and Cavusgil 1991); and the availability, cost, and competencies of marketing intermediaries (Harvey 1993; Wind and Douglas 1986); (3) firm-specific factors, including the degree of centralization in decision making (Quelch and Hoff 1986; Ozsomer, Bodur, and Cavusgil 1991), the relationship between headquarters and local subsidiaries (Jain 1989), corporate orientation (Perlmutter 1969), the firm's experience in international operations (Cavusgil, Zou, and Naidu 1993; Craig and Douglas 1996), and the subsidiary's ownership structure (Rau and Preble 1987); and (4) product and/or industry factors, such as the nature of product (Cavusgil, Zou, and Naidu 1993), stage of product life cycle (PLC) (Baalbaki and Malhotra 1995; Rau and Preble 1987), cultural specificity of the product (Cavusgil and Zou 1994; Quelch and Hoff 1986), product uniqueness (Cavusgil, Zou, and Naidu 1993), conditions and patterns of product use (Hill and Still 1984), product familiarity of foreign customers (Cavusgil, Zou, and Naidu 1993), and industry technology orientation (Quelch and Hoff 1986; Samiee and Roth 1992). In investigating the factors influencing the degree of international pricing strategy standardization, we attempted to include the largest possible number of relevant contingency variables. However, that the present study represents the first systematic endeavor to examine this issue using a descriptive, hypothetico-deductive research approach was a serious obstacle to this end. Although a large number of potentially important variables have been proposed by various authors at the conceptual level (as discussed in the previous section), only a limited number of these have been empirically tested. We therefore deemed it appropriate, from a methodological point of view, to limit our effort to the examination of contingency variables whose relevance had been established in previous standardization studies and that could be linked specifically to the degree of international pricing strategy standardization pursued by MNCs. Accordingly, a review of the limited empirical evidence, combined with relevant conceptual work, revealed five factors that are potentially important in influencing the
extent to which MNCs standardize their international pricing strategy: economic environment, legal environment, distribution infrastructure, customer characteristics and behavior, and stage of PLC. The relevance of each factor is considered next. The economic conditions prevailing in a host country can influence pricing decisions in several ways, because they determine demand potential for a particular product and have a significant impact on a firm's cost structure. On the demand side, the overall level of economic and industrial development of a country determines customers' priorities in terms of the products they consider essential, in addition to the prices they are able and willing to pay for certain products (Jain 1989). For example, a product considered essential in a developed country may be viewed as less necessary or even as a luxury item in a less developed country (Hill and Still 1984). Moreover, demand for a product at different price levels is a function of the purchasing power of targeted customers, which is determined by the level of economic development of the country (Jain 1989). On the cost side, the economic environment of the host country determines the cost of raw materials, labor, energy, and other resources a firm needs to purchase or hire in order to carry out its everyday operations (Douglas and Wind 1987; Samli and Jacobs 1994). The level of such costs has a direct impact on the overall cost structure of local subsidiaries. Thus, the pricing policy pursued by an international firm in a particular foreign market should reflect these factors. We therefore advance the following: H1: The greater the similarity in the economic environment between an MNC's home and host countries, the higher is the degree of pricing standardization. Empirical research has shown that differences in government laws and regulations across markets are among the major obstacles to standardization (Baalbaki and Malhotra 1995; Cavusgil, Zou, and Naidu 1993). A common law found in many countries that directly influences pricing is retail price maintenance, which requires firms to sell certain products at specified prices. The purpose of such laws is either to protect customers from unfair exploitation or to ensure that certain sensitive products (e.g., pharmaceuticals) are easily accessible to almost everybody in the population. Governments may also impose price controls on certain products to protect local producers from international competition that is deemed unfair. Furthermore, pricing is influenced indirectly by laws and regulations that necessitate product modifications in compliance with different technical specifications; health and safety standards; environmental protection acts; electric, weight, and measurement systems; and the like that may prevail in foreign markets (Buzzell 1968; Cavusgil, Zou, and Naidu 1993; Douglas and Wind 1987). To make the required modifications, firms incur extra costs, which forces them either to charge higher prices or to compress their profit margins. We therefore expect the following: H2: The greater the similarity in government laws and regulations between an MNC's home and host countries, the higher is the degree of pricing standardization. International firms often must rely on existing distribution channels to distribute their products in foreign markets. Therefore, the number, type, competencies, costs, and margins of the intermediaries involved in the process of transferring the product from the
point of production to the end user have a significant effect on a firm's cost structureparticularly if the distribution cost constitutes a significant proportion of the total cost. This, in turn, may influence price levels, profit margins, and allied international pricing policy elements (Buzzell 1968). For example, if the distribution channel used in a particular foreign market involves a greater number of intermediaries or channel members are less competent and efficient than those in the domestic market, a significantly higher cost will be added to the product by the time it reaches the end user. The additional cost incurred is likely to result in higher final selling prices and/or reduced profit margins for the firm. Under such circumstances, a firm may also decide to modify other elements of its international pricing policy, including sales and credit terms and discounts offered. It is therefore possible to hypothesize the following: H3: The greater the similarity in the distribution infrastructure between an MNC's home and host countries, the higher is the degree of pricing standardization. The extent to which an MNC will achieve its objectives in a particular foreign market will depend largely on its ability to satisfy the needs and preferences of target customers. Therefore, a careful examination of overseas customer characteristics and purchasing behavior is essential in selecting an appropriate pricing strategy for a specific foreign market. Price level is among the most important criteria used by customers in evaluating competing products (Levitt 1983). However, not all customers are price sensitive; other criteria (e.g., product quality and performance) may be equally or even more important to certain customers (Douglas and Wind 1987). Therefore, in developing its pricing policy, an MNC must be aware of foreign customers' preferences, perceptions, and purchasing behaviors with respect to various price levels. A standardized pricing policy is more appropriate if domestic and foreign customers place an equal emphasis on and have similar perceptions of price. This is more likely to happen when a company is targeting similar customer segments in domestic and foreign markets (Jain 1989). Therefore, we suggest the following: H4: The greater the similarity in customer characteristics and purchasing behavior between an MNC's home and host countries, the higher is the degree of pricing standardization. The stage of PLC is a fundamental variable affecting business strategy (Anderson and Zeithaml 1984). The life cycle of a product consists of four major stages-introduction, growth, maturity, and decline--and marketing strategy programs differentiate across the various stages. Several empirical studies demonstrate the important role PLC plays in determining the degree of international marketing strategy standardization (Baalbaki and Malhotra 1995; Johnson and Aruthanes 1995). Because of possible differences in economic and market development levels among countries, some products may be at different stages of their life cycles in different countries (Buzzell 1968). As a result, MNCs may need to modify their pricing programs to take account of particular local market conditions (Rau and Preble 1987). The significance of such an approach diminishes in circumstances in which there is no difference in a product's life cycle stage between the domestic and international markets (Sorenson and Wiechmann 1975). We therefore hypothesize the following:
H5: The greater the degree of similarity in the stage of PLC between an MNC's home and host countries, the higher is the degree of pricing standardization. We gathered data for this study from a mail survey of manufacturing subsidiaries of MNCs operating in the United Kingdom. We developed the sampling frame for this study using the Financial Analysis Made Easy electronic database of U.K. firms. We identified 706 manufacturing subsidiaries of MNCs, which originated mostly from the United States, Germany, and Japan. We then contacted each of these firms by telephone to ensure that the correct address of each company was available, discover whether there was a product or product line that both the parent firm and its U.K. subsidiary produced and marketed in their home markets, identify the person in each company who was the most qualified to provide the required information (i.e., the key informant), and encourage respondent participation in the survey. Upon completion of the telephone contacts, we excluded 201 firms for a variety of reasons, including an absence of common products in the portfolios of the parent firm and its U.K. manufacturing subsidiary, a company policy of not taking part in external research studies, a change in the firm's status as a result of a merger or acquisition, or the unavailability of correct contact details. In 505 of the 706 (72%) firms, we identified individuals who met the knowledgeability criterion for key informants and were willing to participate and whose companies had a product or product line that the parent firm also manufactured and marketed in its own domestic market. All these firms were targeted in this research. We developed the questionnaire used in this research in several steps. We initially reviewed the relevant literature and simultaneously conducted exploratory interviews with executives in subsidiaries of MNCs to identify items for operationalizing the constructs under investigation. We designed a preliminary questionnaire, which we then asked several academic researchers in the field of international marketing to evaluate; they served as expert judges to appraise the face validity of the items selected. Finally, we extensively pretested and refined the revised questionnaire in personal interviews with managers in subsidiaries of MNCs, which thus assured content validity. Cavusgil and Zou (1994) argue that any study on international marketing strategy standardization conducted at the overall company level is likely to result in confounded and thus unreliable findings. This is because international firms often employ different marketing strategies across countries and product-markets. Therefore, in addressing this problem in the study of pricing strategy standardization of MNCs, we adopt the product or product line as the unit of analysis. Specifically, we ask respondents to answer the questions of the research instrument with reference to a particular product or product line their company (i.e., the subsidiary) is manufacturing and marketing in the United Kingdom but that is also manufactured and marketed by the parent firm in its home market. The extent of international pricing strategy standardization was measured on the basis of five items (see Table 1). Respondents were asked to compare the pricing policy followed
by the subsidiary with that pursued by the parent company in its home market. A sevenpoint rating scale, anchored by "very different" (1) and "very similar" (7), was used to capture individual responses. Regarding the factors that potentially influence pricing strategy standardization, a set of items was used to measure the degree of similarity in economic and legal environments, customer characteristics and behavior, and distribution infrastructure between the U.K. market and that in which the parent firm was based (see Table 2). Again, responses were captured on a seven-point scale ranging from "very different" (1) to "very similar" (7). Following Kotabe and Omura (1989) and Johnson and Aruthanes (1995), a single item was employed to assess the extent to which the focal product or product line is in the same life cycle stage in both the United Kingdom and the parent firm's home market. A seven-point scale, anchored by "strongly disagree" (1) and "strongly agree" (7), was used to measure participant responses. The guidelines of the total design method (Dillman 1978) were followed to enhance respondent participation in this mail survey. A copy of the questionnaire, together with a self-addressed, postage-paid envelope and a cover letter, was personally mailed to the key informant in each target firm who had been identified during the telephone contacts. Reminder/thank-you postcards to all managers and two additional follow-up mailings, followed by two further reminders, produced 129 usable responses. Therefore, a satisfactory response rate of 26% was achieved. Table 1.
Table 2.
To assess possible nonresponse bias, we followed Armstrong and Overton's (1977) formal extrapolation procedure, which is based on the contention that, as contrasted with early respondents, late respondents are more likely to be similar to nonrespondents. Using a t-test under the assumptions of both equal and unequal group variances, we found no significant between-group mean differences between the early and late respondent groups with regard to any of the variables examined in the study. We therefore conclude that nonresponse bias is not likely to be a problem in this research. Scatter diagrams and bivariate correlation analyses pertaining to (1) the international pricing strategy standardization indicators and (2) the external elements that potentially influence the degree of pricing standardization indicated that certain items were highly correlated. Principal components analysis was thus employed in each set of items to explore the presence of an underlying structure in the data. Table 1 exhibits the results of principal components analysis for the international pricing strategy standardization items. When we used an eigenvalue of one or greater as the factor selection criterion along with the screen test, a single-factor solution emerged that explained nearly 70% of the total variance. Table 2 shows the principal components
analysis results with respect to the environmental elements that potentially influence the degree of pricing standardization. A four-factor solution emerged that accounted for approximately 67% of the total variance. The solution featured strong individual loadings on each factor, enabling straightforward interpretation. The four factors have been labeled legal environment, customer characteristics, economic conditions, and distribution infrastructure. Factor scores were then computed for all five factors that emerged for use in subsequent analysis. Multiple regression analysis was used to estimate the relationships of economic conditions, legal environment, distribution infrastructure, customer characteristics, and stage of PLC (independent variables) with subsidiary performance (dependent variable), thus testing H1-H5. As shown in Table 3, both the goodness-of-fit and explanatory power of the estimated regression model were acceptable. The analysis revealed four significant, positive relationships in the equation, pertaining to customer characteristics, legal environment, economic conditions, and PLC stage. These results suggest that the degree of international pricing strategy standardization of MNCs is influenced by the level of similarity between home and host countries in terms of customer characteristics, legal environment, economic conditions, and PLC stage. No relationship was established between similarity in distribution infrastructure and pricing standardization. Therefore, it can be concluded that H1, H2, H4, and H5 are validated and H3 is rejected. Despite the substantial amount of research attention devoted to the subject of marketing program standardization in international markets, little empirical work has been undertaken examining the issue of standardization within the context of MNCs' pricing strategy. To contribute toward filling this void in the global marketing literature, the focus of the present study is the nature of pricing strategies followed by MNC manufacturing subsidiaries and the identification of the factors that drive the extent of international pricing strategy standardization. The study found that the majority of the participant MNC subsidiaries adopt a relatively high degree of pricing strategy standardization. This is signified by the mean scores, standard deviations, and one-sample t-test results for the items used to measure the pricing standardization construct (see the Appendix). This evidence may be attributed to the fact that the vast majority of the sample firms originate in the United States, Germany, Japan, or another developed nation. These countries have considerable resemblance to the United Kingdom in their levels of economic, industrial, and market development, and this similarity is conducive to the pursuit of international pricing standardization. However, previous research shows that a high level of pricing standardization is uncommon among MNCs that operate in less developed host market contexts compared with their home market bases (e.g., Ozsomer, Bodur, and Cavusgil 1991). Notably, our findings appear to suggest that the opposite is true for MNCs domiciled in a developed country and operating in another developed country. Regarding the determinants of pricing standardization, the results indicate that the extent to which MNCs standardize their international pricing strategies depends on certain environmental and market conditions-the degree of similarity between a firm's home and
host markets in terms of economic conditions, legal environment, customer characteristics, and stage of PLC. These findings are consistent with earlier research efforts that have examined determinants of standardization, but within the framework of an overall marketing strategy (e.g., Douglas and Wind 1987; Jain 1989; Johnson and Aruthanes 1995; Samiee and Roth 1992; Samli and Jacobs 1994). However, the level of similarity in the distribution infrastructure between home and host countries was found, contrary to expectations, not to play an important role in the determination of the degree of international pricing standardization. One possible explanation for this result is that distribution costs represent a minor component of the product's total cost and, in turn, have no significant effect on the international pricing strategies of the participant MNCs. Nevertheless, this is an issue that warrants further empirical investigation. Managerial decision making regarding standardization or customization of pricing strategies in international markets should be based on a thorough analysis and assessment of the degree of similarity (or difference) between the firm's home and host markets. In this regard, four factors-customer characteristics and behavior, economic and legal conditions, and stage of PLC-must be taken into account; our study suggests that these elements are significant correlates of standardized pricing programs. Furthermore, because the standardization versus adaptation decision is situation specific, a separate analysis and assessment of the environmental and market conditions that prevail in each targeted foreign market should be performed. Then, appropriate pricing strategies must be developed with respect to each market. At the same time, however, special attention should be paid to the coordination of business operations across different foreign markets and the exploitation of potential scale economies and synergies with the ultimate objective of enhancing the overall company efficiency and effectiveness. The results of the present study substantiate the conclusion drawn in previous empirical research (Cavusgil and Zou 1994) that success in international markets is within the reach of management. Despite the existence of a large and complex set of factors that influence international business activities, managers may be able to enhance the performance of their firms by formulating and implementing marketing programs that match the environmental and market conditions of each foreign market targeted (see Venkatraman and Prescott 1990). It should be remembered that because pricing affects the revenue side of the profitability equation, the ultimate long-term objective of managers in setting international pricing policy centers on revenue maximization. This objective can be achieved through either premium pricing when market conditions are favorable (i.e., demand is strong and competition is weak) or competitive pricing when they are hostile (i.e., demand is weak and competition is intense). Sometimes, however, firms may be forced to adopt uniform pricing across markets as a defensive measure against the graymarket imports of unauthorized intermediaries that are completely out of their control (Cavusgil 1996). Table 3.
Certain limitations evident in the explication of this study should be taken into account. First, the empirical inquiry focused on a specific international market framework (i.e., the United Kingdom), which suggests that the results may suffer from limited external validity. Therefore, readers should exercise caution in attempting to generalize from this investigation, especially if making inferences to other significantly different economic settings such as former Eastern Bloc or newly industrialized regions. Testing the external validity of the present evidence requires an examination of the issues addressed in this study within other international business contexts. Second, the study employed a cross-sectional research design that prevents us from making cause/effect inferences. Future research efforts may consider the use of a longitudinal methodology that, though costly and time consuming, can help track dynamic phenomena such as the relationships of extent of international pricing strategy standardization with its determinants. Third, because of the descriptive nature of the present study, combined with the limited amount of available empirical evidence, a relatively limited number of potential independent variables have been examined. Further research should investigate the significance and relative importance of other contingency factors. For example, more emphasis should be placed on investigating the influence of various firm characteristics and product- and/or industry-specific factors on the degree of international pricing strategy standardization. Given the absence of pertinent empirical evidence, there is a need for more exploratory research to gain insights into the interrelationships among these variables and how they affect international pricing programs. Fourth, the present study looked only into the content aspect of standardization with reference to pricing. Another relevant aspect could be process standardization, which involves the use of uniform structures and processes for the design, implementation, and control of marketing programs in overseas markets (Jain 1989). Future research efforts could add to the body of existing knowledge by exploring the extent of standardization of the process MNCs follow in formulating their pricing strategies across different foreign markets. Finally, a natural extension of the present study would be to consider performance outcomes of international pricing standardization. The pursuit of a particular international pricing strategy makes sense from a managerial perspective only to the extent to which it has a positive effect on the performance of the firm. Conceptual and empirical studies focusing on the drivers and performance consequences of international marketing pricing standardization would have important implications for both theory development and the advancement of management practice in the field. ACKNOWLEDGMENTS The authors received a Best Paper Award for this article at the 2000 American Marketing Association International Conference, Marketing Strategy for Global Organizations, in
Buenos Aires, Argentina. The authors thank the anonymous JIM and conference reviewers for their constructive comments and helpful suggestions. Appendix.
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[Author Affiliation] Marios Theodosiou and Constantine S. Katsikeas
[Author Affiliation] (c) Journal of International Marketing Vol. 9, No. 3, 2001, pp. 1-18 ISSN 1069-031X
[Author Affiliation] THE AUTHORS
[Author Affiliation] Marios Theodosiou is Lecturer in Marketing, School of Economics Fy Management, University of Cyprus.
[Author Affiliation] Constantine S. Katsikeas is Sir Julian Hodge Chair in Marketing Fr International Business, Cardiff Business School, Cardiff University.
Antecedents and actions of export pricing strategy: A conceptual framework and research propositions Matthew B Myers, S Tamer Cavusgil, Adamantios Diamantopoulos. European Journal of Marketing. Bradford: 2002. Vol. 36, Iss. 1/2; pg. 159, 30 pgs Abstract (Summary) The export-pricing literature is characterized by a distinct lack of sound theoretical and empirical works. Of the marketing decision variables, pricing has received the least attention in research despite the continued identification of this issue as an important problem area for firms engaged in export marketing. Businesses competing internationally must develop an effective pricing strategy, as this is a critical factor in their operation. Globalization also requires that management coordinate prices across multiple export markets. Research is thus needed on the empirical relationship between an export-pricing strategy (EPS) and the factors that influence this strategy, as well as the relationship between EPS and the performance of the export venture. A multidimensional conceptualization of export-pricing strategy is proposed in order to integrate the various components of an EPS and link it with its antecedents. Jump to indexing (document details) Full Text (12297 words) Copyright MCB UP Limited (MCB) 2002 [Headnote] Keywords Pricing, Export, International business, Marketing, Management
[Headnote] Abstract The export-pricing literature is characterized by a distinct lack of sound theoretical and empirical works. Of the marketing decision variables, pricing has received the least attention in research despite the continued identification of this issue as an important problem area for firms engaged in export marketing. Businesses competing internationally must develop an effective pricing strategy, as this is a critical factor in
their operation. Globalization also requires that management coordinate prices across multiple export markets. Research is thus needed on the empirical relationship between an export-pricing strategy (EPS) and the factors that influence this strategy, as well as the relationship between EPS and the performance of the export venture. A multidimensional conceptualization of export-pricing strategy is proposed in order to integrate the various components of an EPS and link it with its antecedents. Theoretical insights and empirical findings from the general pricing literature, as well as executive insights from qualitative interviews, are connected with the conventional export-pricing and strategy literature into an integrated model, and specific research propositions are offered for future crossindustry empirical studies.
Introduction The pricing of products in international markets is becoming increasingly difficult for managers due to heightened competition (Cavusgil, 1996), gray market activities (Myers, 1999; Assmus and Wiese, 1995), counter-trade requirements (Cavusgil and Sikora, 1988), regional trading blocs (Weekly, 1992), the emergence of intra-market segments (Dana, 1998), and volatile exchange rates (Knetter, 1994). As global economic foundations continue to shift, long-proven pricing structures are collapsing (Simon, 1995). As competitive pressures increase, strategies for effective pricing of products for sale in foreign markets remain elusive (Samli and Jacobs, 1993). Unfortunately, there is little research to guide managers in their international pricing efforts (Clark et al., 1999). Typically, they rely on intuitive measures and give more strategic focus to other marketing decision variables (Cavusgil, 1996). This often leads to unsuccessful market ventures, since businesses operating in a global environment must have a systematic pricing procedure (Samiee, 1987). Although Ricks et aL (1992) found that it was the number-two problem for international managers, pricing has perhaps been the most ignored marketing decision variable within the research (Li and Cavusgil, 1991; Gronhaug and Graham, 1987; Cavusgil and Nevin, 1981). Most efforts to understand the effects of pricing strategies on firm performance have been undertaken within a purely domestic or single market context with little consideration for the increasingly international configuration and organizational goals of the firm (Myers, 1997). Several types of international pricing are done by firms, and each demands a different approach. Transfer pricing concerns the sale of products within the corporate family. Foreign-market pricing is done by a firm with production facilities within an overseas market (completed products do not cross borders to reach the customer). Export pricing refers to products made in one country and sold to customers outside the corporate family in another country (i.e. independent distributors). In this article, we concentrate solely on export pricing, which is a frequent and formidable challenge for most exporters (Walters, 1989). In addition, we focus on direct, rather than indirect, exporters, since indirect exporters are often restricted in their pricing choices by export agents, and rarely deal with the international issues which make direct exporting so complex (Nagle and Ndyajunwoha, 1988). In this context, while there is evidence to suggest that pricing is a
key variable affecting export performance (e.g. Bilkey, 1982; Koh and Robicheaux, 1988; Kirpalani and Macintosh, 1980), most pricing research emphasizes the domestic market, (addressing such issues as price promotions, consumers' reaction to price, and price-quality relationships), rather than export customers. Given that: few studies have examined export pricing as opposed to other aspects of pricing strategy; what little research that does exist lacks strong conceptual foundations; and insights from the general pricing literature have not been applied to an export context to any appreciable extent, the present article seeks to provide a conceptual framework for pricing in an export context and link it to export performance. Specifically, the purpose of the study is threefold. First, we identify key organizational and environmental factors specific to an export setting that act as antecedents of export pricing strategies. Second, drawing upon the pricing and exporting literatures as well as from exploratory interviews with export managers, we develop a series of research propositions designed to link pricing strategies, contextual variables, and export performance. Finally, we make several suggestions regarding future research in this area and provide guidance in operationalizing key constructs. In the next section, we highlight the distinct nature of export pricing decisions and provide a brief review of past literature. This is followed by a presentation of the proposed conceptual framework and associated research propositions. The paper concludes with identification of future research directions. The distinct nature of export pricing Global marketing decisions about product; price and distribution differ from those made in a domestic context, in that environments within which those decisions are made are unique to each country Gain, 1989), and the pricing problems faced by exporters are distinct from those faced by purely domestic firms in that variables associated with both home and export markets must be integrated into managerial decision making (Diller and Bukhari, 1994). Distinct issues include increased competitive levels, gray market activities, counter-trade requirements, regional trading blocs, standardization versus localization issues, the emergence of intra-market segments, and exchange rate volatility (Cavusgil, 1996; Cavusgil and Zou, 1994; Paun and Albaum, 1993; Samli and Jacobs, 1994; Samiee, 1987). The methods which management utilize to address these environmental issues must be synthesized with organizational concerns such as objectives of the venture (Cavusgil, 1988) and market-related concerns such as market volatility and disparate customer needs (Cavusgil and Zou, 1994), which can greatly narrow the domain of the firm's foreign market activities. Pricing strategies are often based on the premise that the most effective strategies are not apparent until certain shared economies or cross-subsidies are evident. In his taxonomy of pricing strategies, Tellis (1986, p. 147) states that: ... in a shared economy, one consumer segment ... bears more of the average costs than another, but the average price still reflects cost plus acceptable profit. The use of such economies may be triggered by heterogeneity among consumers.
In business-to-business exchange, the consumer is the firm, and the heterogeneity across these firms is a product of economic conditions within the market as well as different utility among buyers (see Moriarty (1983)). However, buyer heterogeneity in business-tobusiness exchange will be reduced relative to that of consumers for a number of reasons. Organizational buyer behavior theorists (e.g. Moriarty, 1983; Heide and John, 1990) posit that organizational buying is distinct from consumer buying behavior in that: (1) organizational purchases are made in group form, typically by a decision-making unit; (2) an organizational decision to purchase must satisfy differing needs and objectives of a variety of participants; (3) certain types of organizational buyer information, including proposals, price quotes, and purchase contracts, add to the organizational purchase a formal dimension not found in consumer buying; and (4) the personal and organizational risk of a company's purchasing decision is generally greater than that of individual consumers (see Moriarty, 1983). Given these parameters, organizational buying is seen as more rational in nature than consumer purchasing, and as a result more homogeneous. When the purchasing entities are importers, however, heterogeneity in the pricing decision model is enhanced by diverse economic conditions across markets (cf. Bello and Gilliland, 1997). In these exchange relationships, information deficiency still exists, yet this deficiency enhances problems beyond what is experienced in domestic exchange. For instance, the search costs of importers compared with domestic buyers will be considerably higher (Anderson and Gatignon, 1986). Furthermore, transaction costs associated with travel, commercial risk and capital significantly exceed that of domestic exchange (Aulakh and Kotabe, 1997). The lack of incorporating the dyadic diseconomies, or the differences in market environments between the buyer and seller which are present in import-export exchange, and the omission of market-related variables, is largely responsible for our inability to rely on traditional theory to explain export pricing strategies. Examples of these dyadic diseconomies are easily made. For instance, market volatility, particularly in the form of foreign currency volatility and inflation rates, are characteristics of economic fluctuations, which result in risk and uncertainty in overseas markets (Aulakh and Kotabe, 1997). Frequent volatility of currency rates suggests that exporters may find themselves benefiting from a weak currency one month and struggling with an over-- valued currency the next. These exporters must be vigilant in their pricing by concentrating on the market's ability to purchase during exchange rate fluctuations. Import policies and trade barriers in import markets have a significant effect on export pricing decisions as well (Cavusgil, 1988, 1996). Price escalation due to import barriers may eat away at profit margins. Price-- quality relationships in overseas markets may also vary significantly, since all imported products may suffer from price escalation (Johannson and Erickson, 1985). The strategy options open to firms may be limited in order to maintain affordable products for the buyer. With the increased tension between
nations over trading policies, such issues as intellectual property rights (Maggs and Rockwell, 1993), non-tariff barriers (Frank, 1984), and anti-dumping legislation have assumed considerable importance and have an obvious connection to export pricing (Joelson and Wilson, 1992). Export markets with strict price-- window regulations often restrict the ability of firms to price at competitive levels (Myers, 1997) and often firms must satisfy local conditions by concentrating on non-price aspects of exchange, such as the use of local or third country currencies of offering volume discounts (Weekly, 1992). The degree of customer sophistication can also vary widely across markets (see Morris and Morris (1990)) and, in many developing economies, customers are less technologically proficient or knowledgeable regarding potential suppliers (Kotabe and Helsen, 2001). More sophisticated customers will often accept high search costs in efforts to locate the best price (Tellis, 1986), and are familiar with the pricing schedules of suppliers and will time their purchases accordingly to lock-in lower prices. Also, more sophisticated customers understand the cost structures of particular products better and, therefore, have a reference for fair price" (Nagle, 1987). Upper and lower thresholds for acceptable prices are thus more firmly established. Given the critical nature of pricing decisions and the large number of firms that employ export marketing as an internationalization strategy, one would expect a wide range of studies concerning company practices in export pricing. As noted, however, relatively few have been conducted. According to Walters (1989), much of the work in international pricing concerns transfer pricing in multinational corporations (e.g. AlEryani et al., 1990; Arpan, 1973). Some important studies exist, however, on the effect of an overseas market environment on pricing, on pricing in developing countries and in specific markets, and on price controls overseas (Walters, 1989). Several pricing-decision models have resulted from research on fluctuating exchange rates, including work by Clague and Grossfield (1974) and Choi (1986), and the literature also includes several qualitative models and approaches in overseas pricing situations (e.g. Farley et at, 1980; Rao, 1984; Walters, 1989). The research that does exist, however, (e.g. Clark et at, 1999; Samli and Jacobs, 1993, 1994; Diller and Bukhari, 1994), supports our argument that a wide variety of organizational and environmentally specific factors influence export pricing. Cavusgil (1988) summarizes these factors into six groups of variables: (1) nature of the product or industry; (2) location of the production facility; (3) system of distribution; (4) location and environment of the foreign market; (5) regulatory framework; and
(6) management attitudes. In a similar vein, Lancioni (1988) states that price setting in international markets should be approached at two different levels - the external (customers, competition, government regulations) and the internal (cost reduction, ROI levels, and sales volume requirements) - and that both must be taken into account. This is plausible, since export pricing is an integral part of overall export strategy; indeed, exporting itself can be conceived as a strategic response by management to both internal and external forces (Cavusgil and Zou, 1994). The former relate to such organizational characteristics as corporate goals, desire for control over prices, and degree of company internationalization, while the latter include competitive pressures, demand levels, legal and governmental regulations, and exchange rates. The degree of alignment of these forces with the marketing strategy of the firm determines its performance (Aldrich, 1979; Porter, 1980). This principle suggests that pricing can be used as a distinct proactive strategy within the overall export marketing strategy of the firm. In this context, both the exporting literature (e.g. Walters, 1989) and the general pricing literature (e.g. Diamantopoulos and Mathews, 1995) suggest that successful price decision making is highly dependent on the situational variables that characterize dynamic, turbulent environments. In summary, while managers will encounter many of the same type of market forces in the international arena as at home, in each export market these forces have a different effect and a different "constellation" of components (Kublin, 1990), including specific components not characteristic of domestic operations. These characteristics, discussed in detail in the following section, make pricing in export markets particularly problematic for managers. A conceptual framework for export pricing decisions Both the export marketing literature (e.g. Walters, 1989) and the general pricing literature (e.g. Gabor, 1988; Morris and Morris, 1990) indicate that successful price decision making is dependent on situational variables in dynamic environments. This calls for a contingency approach to export pricing, since the pricing process is far too complex to be amenable to a universal type of explanation (Diamantopoulos and Mathews, 1995). The variables in contingency theory (Zeithaml et al, 1988) blend well with the internalexternal forces/export strategy/export performance framework of Cavusgil and Zou (1994). Contingency variables (which provide only limited or indirect opportunities for control by the firm) relate to internal and external forces, response variables (those that reflect decisions and actions taken by the firm) relate to export pricing dimensions, and performance variables (those that represent the outcome of such action, enabling an evaluation of fit between contingency and response variables) are accounted for by the firm's export marketing performance. Successful implementation of EPS depends on accurate identification of the contingency variables and the proper "fit" of pricing decisions and actions by the firm. A contingency approach to export pricing requires the proper identification of these components. As Hofer (1975) and Diamantopoulos (1991) show, dozens of factors can
affect pricing strategy and, including all possible variables in future empirical research, would result in highly situation-specific studies. Therefore, for present purposes, the list must be condensed, but care must be taken to identify the most significant factors important in an export setting. To pinpoint the most critical contingency variables, indepth interviews with international managers were conducted, following the suggestions of Bonoma (1985) and Eisenhardt and Bourgeois (1988). Specifically, 12 interviews with a diverse set of manufacturing exporters in the Midwest and Southern USA took place, utilizing open-ended questions regarding the export pricing strategies of these firms and the factors shaping these strategies. These firms were chosen not only because of the significant amount of exporting conducted, but also due to the disparate markets which they serve (European, Asian and LatinAmerican). Firm size (as a function of sales) ranged from US$10 million to over US$500 million. In all instances, the key informant was the manager in charge of overseas operations for specific products or product lines. These qualitative interviews highlighted critical variables and help reduce reliance on theoretical reasoning and past findings in the development of our conceptual framework. This conceptual framework, illustrated in Figure 1, is designed to provide directions for future research in determining the best pricing strategies for export marketing managers. The key constructs address the relationships between export pricing strategy and the internal and external forces described by Tellis (1986) and extended by Cavusgil and Zou (1994). By integrating the research that links export strategy to export performance with the research that identifies pricing strategy as a determinant of marketing performance (e.g. Rao, 1984; Tellis, 1986), we argue that export pricing strategy affects the export marketing performance of the firm. In turn, selected internal and external variables are seen as antecedents to the EPS adopted by the firm. These antecedents can be categorized into three distinct groupings, incorporating a number of specific variables each: (1) firm and management characteristics, which include the international experience of the firm and its commitment to the export venture; Figure 1.
(2) product characteristics, which comprise degree of standardization and age; and (3) export market characteristics, which include channel length, customer sophistication, regulatory and competitive intensity, foreign currency volatility, and rate of inflation. The details of these variables and their proposed relationships with export pricing strategy are discussed below, and specific propositions are developed. It should be noted that in this study we address only those variables that have been frequently identified in the literature to affect export pricing strategy, or those that were identified in our qualitative interviews by export managers to drive their pricing decisions. These variables are defined in Table I. We remained selective in inclusion of relevant variables, since excessive detail could result in an "almost endless, and thus unmanageable, listing of situational variables, providing little scope for comparison and generalization across
settings" (Diamantopoulos and Mathews, 1995, p. 27); our concentration is only on those factors which make export pricing distinctive from domestic pricing. Export pricing strategy While export pricing is regarded by management as a strong determinant of performance and profitability, it is perhaps the most misunderstood and least effectively used competitive tool (Cavusgil, 1996). The literature does not offer any well-established measures or conceptualizations of export pricing strategy (EPS). In this study we define EPS as the means by which a firm responds to the interplay of internal and external forces that affect export-pricing decisions in order to meet the goals of the export venture. The construct incorporates three basic dimensions: (1) management's price-setting philosophy; (2) price determination; and Table I.
Table I.
Table I.
(3) pricing implementation. The literature supports this conceptualization, and our preliminary interviews with international managers confirm it. Within these dimensions lie the various alternatives available to the firm, including uniform pricing of products, market versus cost-based pricing and the centralization of the pricing decision within the organization. Export price-setting philosophy Export price-setting philosophy refers to the guiding principles used by management in its pricing strategy. These are reflected in a variety of managerial and environmental factors and address such issues as the pricing objectives of management, the competitive posture associated with export pricing, the control of the export-pricing decision within the organization, and the flexibility or rigidity of export-pricing procedures. Pricing objectives. Pricing objectives are the strategic and economic goals desired by management in pricing the product (Diamantopoulos and Mathews, 1995). Although the operationalization of export marketing performance indirectly captures these objectives, here we formally operationalize them within the strategy construct. Given that pricing behavior is purposive (i.e. seeks to achieve specific and conflicting goals), an EPS
reflects not only export-- market factors but also the short- and/or long-term pricing goals of the firm, which themselves are a subset of overall corporate objectives (Morris and Morris, 1990). In this context, from the perspective of empirical analysis, Diamantopoulos (1991) argues that comparisons of pricing strategies are not in themselves instructive, unless differences in specific objectives pursued are taken into account, and that the objective functions of real world firms are multi-faceted rather than singular, "... which implies that any theoretical representation ... based on a single goal (whatever that goal may be) involves a substantial (and potentially unacceptable) degree of abstraction from reality" (Diamantopoulos, 1991, p. 138)[1]. Moreover, the pricing objectives of the firm are not static and will change within the export market, as such factors as product age and competitive levels change (Engleson, 1995). It is critical to determine the firm's pricing objectives before proceeding to formal examination of export pricing (Diamantopoulos and Mathews, 1995). Morris and Morris (1990) list 21 different pricing objectives available to the firm. Following Samiee (1987), we classify them as profit (e.g. return on investment, profit growth) and competitive positioning (barriers to entry, matching competition, maintain/increase market share). Pricing objectives can be conflicting as well as complementary (increased market share brings increased profits, yet to increase market share the firm may have to experience losses in the short term by undercutting competitive price offers), as well as subject to hierarchical considerations regarding level of importance (see Paun and Albaum (1993)). Much of the conflicting nature in pricing objectives may be attributed to temporal issues, in that short-term objectives, from the pricing perspective, are not easily synthesized with long-term objectives (see Guiltinan and Gundlach (1996)). Individuals involved in the pricing of exports are interested in the long-term survival of the firm, which in turn is reliant on the ability of the organization to adapt to a variety of environmental pressures and constraints (see Thach and Axinn (1991)). The question of whether the objective of the firm is purely to maximize profits is further challenged in the export setting in that the firm often adopts a satisfactory profits approach in order to justify market participation and establish longer term relationships with satisfied customers (Monroe, 1990). Relationships between antecedent variables and export-pricing objectives have yet to be explored in the literature, so reliance on domestic and consumerrelated pricing studies is necessary to a certain degree. Diamantopoulos and Mathews (1994) demonstrate the relationships between a variety of antecedent variables and pricing objectives in domestic markets. Similarly, Nagle (1987) indicates that a number of variables (such as market growth and competitive intensity) affect individual pricing objectives. Specifically, as competitive levels within the export market increase, the firm must price its product at or near that of the competition in order to survive (Simon, 1995). If firms attempt to maximize return on investment or profit growth in competitively intense environments, then competitive price margins will detrimentally affect the attainment of these goals, so the firm must choose a price at or near that of rivals (Engleson, 1995). Pricing objectives will also change, as the product evolves from its introductory stage through growth and maturity, with profit-oriented pricing being standard for new products and more competitive pricing being standard for mature products (Morris and Morris, 1990; Porter, 1986). It should be remembered that exporters are often faced with different life-cycle
scenarios in overseas markets from their domestic counterparts with the same product. Once new products become exposed to markets, competitors often enter with similar products and new process technologies that enable them to compete on price, which prompts firms to re-orient their pricing policy (Monroe, 1990). This is supported by managerial comments during the qualitative interviews: Our product is the same as our competitors'. The only way to compete is on price and delivery reliability. Our effort is to maintain market share. A number of international economic factors affect export pricing objectives, particularly inflation and exchange rate fluctuations (Cavusgil, 1996). The underlying relationship between exchange rates and the prices of traded goods, or the exchange rate pass-through relationship, is a critical factor in determining prices (Athukorala and Menon, 1994). The relationship between the export market currency and the home currency of the exporter will affect the affordability of the exported product as well as the exporter's ability to raise prices and still reach sales targets. When the exporter's currency is weak, it will be able to stress price benefits, particularly when compared with in-- market competitors. When the exporter's currency is strong, it may resort to competitive pricing and/or engage in non-price competition by stressing quality and customer service (Cavusgil, 1988). Similarly, in preliminary interviews managers stated that high inflation rates in the export market will produce a "false elasticity" effect in that, even though the exporter's quoted prices of goods do not change, effective prices will be higher. This will limit the exporter's ability to pursue profit oriented pricing objectives, since the purchasing power of the buyers will be reduced. Given this background, the following proposition is offered: P1. Management is more likely to pursue competitive pricing objectives (as opposed to profit-oriented objectives) when: the competitive intensity of the export market is high; the product is mature in the export market; foreign currency volatility is high; and the inflation rate in the export market is high. Competitive posture. In the equations of supply and demand that influence price, the supply side includes competing firms within the industry willing and able to sell at different prices (Morris and Morris, 1990). Export markets are experiencing rapid rates of change, as technology, governmental regulations, and economic foundations shift (Simon, 1995). Often, this increases the differentiation across markets (see Sheth, 1985), while within a particular market the customer base is fairly homogeneous and serviced by several sellers with specialized technologies. When buyers are homogeneous, product differentiation becomes less critical, and sales are based on competitive prices (Tellis, 1986). This mandates constant monitoring of the competition's prices, and a philosophy of using price as a competitive tool. Price is determined solely on competitive moves; here exporters charge a price roughly equivalent to that of competitors. Complications arise if local competitors (i.e. those from the export market) remain unaffected by economic or regulatory shifts within that market, shifts which affect the exporter's price and not the local competition's. This is considerably different from domestic competitive
environments where each competitor is affected by the same economic changes, as is the buyer. In our preliminary interviews, exporters indicated that this was often the case: We base our prices on what our competition is doing, and try to keep a specified amount above or below the competitor's price. We base our prices on the competition's, and change the price as often as every order. Our price is either just below our competition's, or it is exactly the same, never above. Our distributor tells us what [the competition's] price is, because we've had a long relationship. International experience is positively related to export performance (Kirpalani and Macintosh, 1980) and, since pricing is a key factor in a firm's overall marketing strategy, the perception of export pricing as a competitive tool will be partly determined by the firm's experience in international markets and its emphasis on price versus non-price benefits. In addressing the characteristics of the finn, Katsikeas and Morgan (1994) found that more experienced firms perceive export-pricing activities as more problematic than less experienced firms, and that firms of all experience levels rank pricing issues very high in their export decisions. More experienced firms seem to realize the complexity of pricing and are willing to address it deliberately in formulating a competitive posture. According to Guiltinan and Gundlach (1996), firms can enact predatory pricing strategies that involve lowering prices to an unreasonably low or unprofitable level in order to weaken, eliminate, or block the entry of a rival, and this obviously deviates from traditional profit maximization objectives. Several motivations for low or below cost pricing exist, including volume sales and market share. Pricing that is designed to achieve long-term customer satisfaction or other volume-oriented objectives can be profitoriented, because short-term profits may be traded for long-term gains (Guiltinan and Gundlach, 1996, p. 90). However, firms seeking these long-term gains must be committed to the venture to a degree that warrants these short-term losses; otherwise these losses cannot be recovered over time. The degree of importance management attaches to price as a competitive tool depends on whether the firm seeks competitive advantage by offering its customers a less expensive product than that of rivals or a differentiated product (Nagle, 1987). A firm offering a comparable product at a lower cost can increase sales via opportunistic pricing, but this advantage can only be maintained if costs can be controlled (Monroe, 1990). One method of controlling costs is by standardizing products, and firms that emphasize non-price benefits to the customer may not perceive price as a competitive tool. A superior product often enables the firm to profit from premium prices (Porter, 1986). Following the work of Jain (1989), the presence of heavy competition in the market may necessitate customization of export products. When this is not possible, however, the firm will be left to compete on price and other aspects of the marketing mix. A weak exporter's currency will enable that firm to utilize price as a competitive tool. Those with weak domestic currencies often use price to build market share and combat
competitors (Kotabe and Helsen, 2001). On the other hand, firms exporting to countries where the currency is depreciating face greater need to remain competitive in pricing (Cavusgil, 1988). Similarly, those export markets suffering from high inflation are conducive to using price as a competitive tool, since the importer is already burdened by increasing costs of goods manufactured in the export market, and the exporter can price his goods below local competitors with little effect on its own profit margins (Myers, 1997). This allows him to use price as a competitive tool. All this suggests: P2. Management is more likely to use price as a competitive tool when: the competitive intensity of the market is high; the international experience of the firm is high; commitment to the export venture is high; product standardization is high; and foreign currency volatility is high. Decision control. The level within the organizational hierarchy at which the pricing decision is made plays a critical role (Abratt and Pitt, 1985; Clague and Grossfield, 1974). Who is responsible, or the degree of price-setting autonomy outside upper management, is a key determinant of an export pricing strategy (Baker and Ryans, 1973). The salesforce tends to concentrate on competitive factors that affect sales volume, while management usually is concerned with profit margins above the total cost of the product (Myers, 1997). As noted, the sophistication of buyers in the export market will often differ drastically from domestic customers (Kotabe and Helsen, 2001). Thus, exporters must deal with different levels of customer sophistication in each market. Preliminary interviews indicate that, as customer sophistication increases, the ability of the salesforce to determine the actual end-price of the product becomes critical. This point-of-sale decision making increases the firm's responsiveness to well-informed customers (Anderson, 1985) and, while sales force personnel are rarely aware of the changing costs of input prices (Grove et al., 1992), more sophisticated buyers demand the service that a saleforce provides, including the ability to make on-the-spot price decisions in order to meet buyer needs. Sophisticated customers are also more likely to have price objections, and these objections are best addressed by the salesforce personnel (Winkler, 1983), meaning that decision control is better left to the individual closest to the point of sale. In the domestic marketing literature, the effect of channels and distribution processes on pricing decisions has received extensive attention (Stem and El-- Ansary, 1977). In the international environment, however, relatively little empirical work has been reported. An exception is Williamson and Bello (1992), who examined export management companies (EMCs) and the pricing methods used in transactions between EMCs and domestic producers. Following this study, it is evident that the services offered within the channels in overseas markets, as well as the complexity and development of those channels, also will influence pricing strategy. Lengthy and dynamic international distribution channels are susceptible to export-price escalation (Cavusgil and Zou, 1994); without in-market or close-to-market decision making, the possibility of overpricing exists. Exporters must maintain price levels in markets where the large number of middlemen in the distribution channel often forces prices above competitive levels
(Kotabe and Helsen, 2001). Control over the final price often decreases, as the product travels though the distribution channel, depending on the relationship between the channel members and the exporter (Bowersox et al., 1992). Price decision control will therefore be less centralized in order to control price escalation inside the market. This understanding of added in-market price by lower level management increases the firm's ability to combat this escalation (see Cavusgil (1988)). When faced with external uncertainty, firms are better off internalizing transactions and allowing the absorption of uncertainty through specialized decision making within the firm (Aulakh and Kotabe, 1997). Pfeffer and Salancik (1978) argue that looser, flexible structures are more effective under conditions of high external uncertainty: this ability to respond to uncertainty is facilitated through salesforce autonomy. External uncertainty, of course, can take the form of competition or volatile economic conditions in the export market. High competitive intensity in the export market increases the need for quick decisions, dictating a fluid and simple pricing method by those familiar with the market and the customer (Engleson, 1995). This is possible only if lower-level managers and sales representatives are given autonomy. Concurrently, they must be familiar with customers, distributors, and competitive levels within their area of responsibility (Winkler, 1983), a familiarity that results from significant exposure to the export market. For the same reasons, markets with volatile fluctuations in exchange rates or those suffering from inflation problems will necessitate local pricing control, with close to market decision makers changing prices as currency fluctuations and inflation rates modify the purchasing ability of buyers. Thus: P3. Control of the export-pricing decision by high-level (headquarters) management is more likely to increase when: customer sophistication is low; the distribution channel is short; foreign currency volatility is low; the inflation rate of the export market is low; and competitive intensity within the export market is low. Pricing flexibility. Pricing flexibility is defined as the willingness to change prices based on special circumstances, versus rigidly enforcing a set price. Traditionally, the practice of an annual pricing review has been consistent with the literature (Diamantopoulos and Mathews, 1995), which posits that prices should be changed no more than once a year, so that customers can make their own costing and pricing plans (Garda, 1984). This policy, however, can create problems for the firm such as forward buying by distributors who anticipate the review; and failure to effectively "pass through" exchange-rate induced margin changes in export market currency terms (Cavusgil, 1996; Clark et al., 1999). With the increasing competitive intensity of global markets, it is imperative to be more flexible, to change prices based on special circumstances, such as competitive price shifts and currency rate changes. Economic fluctuations will affect the purchasing power of buyers, particularly as foreign currency valuations between the buyer-seller dyad change (Piercy, 1981). Therefore, in order to maintain sales volume firms must be flexible in setting prices. It is apparent from managerial responses that economic volatility in the export market plays a significant role in pricing activities:
The conditions in our markets are constantly changing. Overnight we can be priced out of the market, because our products become too expensive. Unless we change our price according to the Peso, our buyers can't afford our products. The inflation rates in our market [Brazil] are often so out of hand that we change our prices every month. Unauthorized distribution is a big problem. When currency rates fluctuate a lot, we inevitably will find our buyers going next door [to another market] to buy our product from a cheaper distributor. While we have a smooth relationship with our importer, we know that he is very familiar with our cost structure and, that if we raise prices too high, he will attempt to find another supplier. Farley et al. (1980), who analyzed marketing decision systems within two European industrial firms, report that prices and volumes of each product were under continuous review, since conditions constantly changed in many end-use markets. Through forecasting, firms develop ongoing systems for both volume planning and pricing; these feedback systems are triggered by perceived changes in market conditions (Engleson, 1995), and these changes take several forms. As competitive levels fluctuate within a market, exporters must constantly monitor their prices in relation to the prices and offerings of competitors (Cavusgil, 1988). Volatile exchange rates also affect the exporting firm's need to occasionally change prices (Cavusgil, 1988). Firms exporting to markets where the currency widely fluctuates must examine their pricing policy frequently. Similarly, high inflation rates in the export market will necessitate frequent review of prices. As is evident from the managerial responses, inflation rates can rapidly erode the ability of buyers to pay export prices, and firms will have to reduce prices according to levels of in-market inflation fluctuation. Therefore: P4. Management is more likely to use flexible than rigid pricing when: the competitive intensity of the export market is high; foreign currency volatility is high; and the inflation rate in the export market is high. Export-pice determination Export-price determination refers to the specific methods employed to calculate and achieve the final price. Many methods are available, since managers need more than one option for pricing various products in various competitive environments. A wide range of organizational and environmental factors affect the methods) used: Specifically, it has been established that the more sophisticated pricing formulae are typically used by large firms ... It has also been observed that pricing methods vary across different industry sectors, product types, and production and distribution methods (Diamantopoulos, 1991, p. 151). We will concentrate on the methods considered strategically manipulable by the firm; that is, monopsonistic pricing will not be included in our discussion.
Price determination can be broadly categorized into two groups: (1) methods that are cost based (i.e. cost-plus and marginal-cost pricing); and (2) market based (i.e. market, trial-and-error, penetration, and value pricing). The marketbased approaches focus on competition, customer demand, or both (Morris and Morris, 1990). Of these two categories, cost-based pricing appears to be much more prevalent Monroe, 1990): This tendency is one of the great ironies of business, and reflects a general level of naivete among managers responsible for pricing decisions (Morris and Morris, 1990, p. 22)[2]. Cost-based versus market-based export pricing. According to Cavusgil (1988), product and resource costs influence the pricing strategies of the firm. Costs are frequently used as a basis for price determination, largely because they are easily measured and provide a "floor" under which prices cannot go in the long term (Simon, 1995). Most exporting companies focus on a cost-centered pricing strategy, particularly the cost-plus method (Hunt, 1969; White and Niffenegger, 1980). According to Backman (1953, p. 148), "the graveyard of business is filled with the skeletons of companies that attempted to base their prices solely on costs." Given that firms must also focus on two other key aspects of price: demand and competition (Monroe, 1990), which are particularly complex in international environments, this observation is especially ominous to exporters. The popularity of cost-based strategies reflects the fact that they are easy to implement and manage; setting a price that covers costs and generates a fixed profit margin makes intuitive sense to the manager (Morris and Morris, 1990). Often, exporters will simply place the same price on their exported products as that of those sold domestically (Seifert and Ford, 1989). Cost-based pricing strategies are indicative of profit-oriented firms, often with short-run expectations within the market (Cavusgil, 1996). This is similar to a "skimming" strategy (Monroe, 1990), yet, while the motives of profit-taking firms may be the same domestically as internationally, the opportunities which allow these firms to profit often find a different genesis in that exporters benefit from the cross-market dyadic diseconomy which allows them to take profits in times of economic fluctuations between markets. These are opportunistic firms that take advantage of market inefficiencies such as monopolistic structures or new technologies within the export market (Myers, 1997). The objectives are shortterm. Price is determined by strict cost-plus or marginal cost procedures, with little interest in market, customer or competitive factors. This is evident in many of the responses from managers when asked to describe their pricing methods: Our price is based on the domestic price. We typically price our products based on a standard percentage mark-up. We will until our profits decrease. Our prices are based primarily cost-plus or 30 percent off suggested retail. We do this in every market because we haven't seen any reason to adjust our approach.
We move in and out of a variety of markets, and price our products as high above costs for as long as we can. When profits begin to decline, we move on to other markets. Our prices, both domestic and export, are based on cost plus added amount for profit margin. No special pricing for our exports. Despite the prevalence of a cost-based perspective to pricing exports, there is an alternative. By incorporating market, competition, and customer related variables into their pricing decisions, exporters can address a number of potentially confounding issues. This market-based pricing is particularly critical, given the discussion on environmental determinants of pricing in an international environment, and it is at times difficult to understand why exporters do not incorporate these variables into their pricing strategies. In our contact with export managers, however, several indicated that this strategy is the foundation of their pricing efforts, and for a number of critical reasons: With our exports, we are continuously under suspicion of dumping our products. We have to take care not to violate the local regulations on this issue, and ... we have to compete on service, not price. We develop a base price acceptable to our distributors. Deviations are made based on specific situations in the market, such as new import taxes and volume limitations. Based on governmental procedures, we must sell our product at a higher base price to our foreign customers. We try to remain price-competitive in our terms of trade. We have to manipulate our prices based on what the import regulations let us do, and they are constantly changing. If we have to price above our local competitors, then we try to offer volume discounts or work with the buyer in their currency of choice. Pricing methods such as penetration pricing are based on the market, and focus on the customer and/or competition (charging a price roughly equivalent to that of competitors or what the market will bear). In more price-sensitive markets, strategies based on the demand and competitive dimensions of the market are considered to be more suitable than cost-based pricing (Morris and Morris, 1990). Piercy (1981) found that certain UK exporters price according to the individual target market, almost two-thirds emphasize a market-based approach, due to the price focus of competitors. Intense competition often dictates market pricing (Diamantopoulos, 1991), and firms involved in highly competitive export markets often have little price discretion, as what they can charge will be established by the market, especially if they are not a market leader (Engleson, 1995). Import policies and trade barriers in international markets have a significant effect on export-pricing decisions. Price escalation due to import barriers may eat away profit margins (Cavusgil, 1996). With the increased tension between nations over trading policies, such issues as intellectual property rights (Maggs and Rockwell, 1993), nontariff barriers (Frank, 1984), and antidumping legislation have assumed considerable importance and have an obvious connection to export pricing (Joelson and Wilson, 1992).
For example, antidumping laws regarding specific products will affect pricing decisions, since the simple cost-plus method may result in a price too low to comply with market regulations. Export markets with these price-window regulations dictate market pricing. Caught between high base costs and the need to charge break-even prices, firms often cannot compete in highly price-sensitive markets. Some buyers will have a low reservation price for the product in that they are pricesensitive or do not need the product urgently enough to pay the price other buyers pay (Tellis, 1986). Economic and behavioral foundations within the market affect customer reactions to price and, with sophisticated customers, i.e. those aware of potential alternative suppliers and prices, exporters face increased challenges in that customers will have search costs exceeding those within the market (Cavusgil, 1996). This means that the opportunity costs associated with finding an overseas supplier may exceed the benefits associated with that relationship (Anderson and Gatignon, 1986). Transaction costs associated with investment risk, currency exchange, or switching costs also factor in to the buyers' decisions (Williamson, 1975). Mostly, however, firms employing a marketbased EPS focus on the customer's ability to pay for the goods, or the value placed on that good, or both. This perspective is evident in several comments made by export managers: Price is always based on the individual customer. They request certain sizes, colors, etc., then we price based on the information they provide us. We have to constantly watch the exchange rates. If the dollar gets too strong, our buyers will go to local suppliers. Information from our agents and meeting with our overseas customers allow us to constantly monitor the market. Within the literature, studies show that external uncertainty allows negative information asymmetries to develop and provides the opportunity for outside forces to behave opportunistically (Klein et al, 1990). In export markets, external uncertainty exists in the form of economic fluctuations, particularly in volatile exchange relationships and rising inflation rates. Those exporters with weak home-country currencies often use price to build market share and combat competitors. On the other hand, firms exporting to countries where the currency is depreciating face greater need to remain competitive in pricing (see Kublin, 1990). Frequent volatility of currency suggests that exporters may find themselves benefiting from a weak currency one month and struggling with an over-valued currency the next. These exporters must be vigilant in their pricing by concentrating on the market's ability to purchase during exchange rate fluctuations, understanding that cost-based pricing techniques can send the price of the product above the purchasing ability of the buyer, or result in lost opportunities if prices are not adjusted accordingly (Assmus and Wiese, 1995). High rates of inflation in the export market will also urge managers to remain market-oriented in their pricing, because the buyer's ability to purchase in periods of increasing inflation rates will limit his ability to purchase products from overseas, due to home currency devaluation (see Knetter (1994)). Therefore:
P5. Management is more likely to use market-based than cost-based export pricing when: the competitive intensity of the export market is high; customer sophistication is high; the regulatory intensity of the export market is high; foreign currency volatility is high; and the inflation rate in the export market is high. Export pricing impLementation Day-to-day price management involves tactical moves that allow the firm to combat or take advantage of anomalies within the export market. Export pricing implementation comprises the degree of coordination the firm seeks in pricing across markets and the choice of currency used in price quotations. Price coordination. Within the international environment, a great deal of pressure is being placed on firms to align or coordinate their prices (Diller and Bukhari, 1994). One of the primary reasons for this pressure is gray market imports. Defined as selling trademarked products through channels not authorized by the trademark holder (Myers, 1999; Duhan and Sheffet, 1988), gray marketing is in effect a type of arbitrage brought about by inflexibility in the face of price and exchange-rate fluctuations across markets. The volume of gray market imports is significant, particularly in premium products and brands (Assmus and Wiese, 1995; Cavusgil and Sikora, 1988). The situation sometimes results from the unavailability of goods in certain markets and the ease of product movement across borders, but most often the cause is a substantial price difference between or among national markets (Myers, 1997). The problem is aggravated, as the firm's presence in economically diverse markets increases and as the margin between prices in domestic and adjacent markets tempts unauthorized sellers to cross borders and sell products at higher prices than at home (Assmus and Wiese, 1995). Firms attempt to coordinate their product prices uniformly across all markets in order to curtail gray market imports. This approach is difficult, however, when inflation or devaluation of local currency results in prices beyond the purchasing power of indigenous customers but not those in a neighboring economy. Customer satisfaction can be better met by adapting the product to an individual market (Douglas and Craig, 1989), but the costs of adaptation and the advantages gained will influence the export price of the product (see Samli and Jacobs (1994)). The standardization/adaptation issue has long been debated in terms of market coverage, capacity utilization, specialty products, and market niches (Samiee and Roth, 1992). Product adaptation incurs costs in developing alternative variations (Cavusgil et al., 1993), and these must be reflected in the export price. Managing a series of adapted products in multiple markets calls for pricing decisions to be made close to those markets, which decreases the effectiveness of a pricing coordination strategy. Concurrently, sophisticated customers familiar with competitive prices and experienced in purchasing will demand quick pricing decisions at the market, not upper-- management, level. Thus: P6. Management is more likely to seek price coordination across its export markets when: foreign currency volatility is high; and product standardization is high.
Currency choice. With an increase in the global sourcing of raw materials, components, and other products by firms, exporters are increasingly compelled to price their products in non-domestic currency denominations (Samiee and Anckar, 1998). The choice of currency, then, has become increasingly critical in securing export contracts, as well as maintaining or increasing export market share (Samiee and Anckar, 1998; Donnenfeld and Zilcha, 1991)[3]. The currency a firm chooses to use in its export transactions is determined by a number of variables. Along with product cost, the degree and caliber of competition are perhaps the most important factor (Abratt and Pitt, 1985), and most companies will adjust price or other elements of their total offer in order to meet competitive situations (Farley et aL, 1980; Lecraw, 1984). This means that flexibility regarding the currency used for the transaction is critical to remaining competitive. In many cases the exporter has no choice but to offer currency terms comparable with those of competitors (Diamantopoulos and Mathews, 1994; Piercy, 1981). This is evident in the statement of an exporter of machinery to Latin America: In highly competitive markets, we'll price our goods in whatever currency the customer wants. This is consistent with past studies (e.g. Javaid, 1985) that, in highly competitive markets the buyer's negotiating position improves, and exporters are faced with increasing demand to invoice importers in their domestic currencies. In their recent study of currency choices among firms, Samiee and Anckar (1998) note that firms dealing in currencies other than their domestic currency face greater financial risks. Greater involvement and experience in exporting afford the firm better knowledge of markets, customers, and risks involved in dealing with local currencies. As management develops more skill with complex exchange rates, it can price exports in various currencies, as dictated by the customer. Experienced exporters are inclined to use currencies other than that of their home market in their trading (Cavusgil, 1988). Also, in markets with high foreign currency volatility, the exporter may be forced to choose currencies other than those customarily used (e.g. Bilson, 1983), making it easier for the buyer to purchase products with more affordable, or available, currencies. Therefore: P7. Management is more likely to use third-country and/or indigenous customer currencies in export pricing when: the competitive intensity of the export market is high; the international experience of the firm is high; and foreign currency volatility is high. The relationship between EPS and export Performance Aaby and Slater (1989) show that an export marketing strategy and management's ability to employ it determine export performance. When this strategy is aligned with the export venture as defined by the characteristics of the firm, product, industry, and export market, positive performance can be expected (Anderson and Zeithaml, 1984; Venkatraman and Prescott, 1990). Consistent with Cavusgil and Zou (1994), export performance is conceived at the product-market level, and it incorporates both economic (e.g. sales and profits) and strategic (e.g. competitive response, market expansion) outcomes in the
market. Accordingly, export marketing performance refers to the extent to which a firm's economic and strategic outcomes are enhanced when selling a product in a foreign market[4]. As noted, the use of purely cost-based pricing strategies has been associated with substandard firm performance. Managers who see pricing as no more than a mark-up over costs may price the product out of the market. This is particularly true in international environments, where rapidly changing market conditions can result in price increases beyond the control of management (Myers, 1997). Furthermore, White and Niffenegger (1980) found that pricing decisions are centralized in firms using cost-based strategies, which implies a degree of rigidity and inertia in adapting to market changes and the lack of an organized market research program. Several authors (Douglas and Craig, 1989; Quelch and Hoff, 1986; Walters and Toyne, 1989) have described competitive pricing strategies as one way in which firms can adapt offerings to fit the demands of foreign markets. This theme of increasingly competitive export environments is prevalent within the international marketing literature, and following this perspective it is expected that export performance is positively influenced by competitive export pricing. Similarly, and following Porter (1980, 1986) and Ohmae (1990), among others, an increasingly competitive and dynamic international business environment will reward flexible and responsive marketing strategies rather than more static practices. This flexibility calls not only for a change in traditional pricing philosophy but also for frequent pricing policy reviews to monitor market and competitor conditions. A competitive environment mandates a focus on customers' satisfaction and their desire for the use of certain currencies in transactions. As international business transactions increase world-wide, customer sophistication will also increase, dictating a more buyer-oriented approach to marketing export products (Kotabe and Helson, 2001). This mandates greater autonomy of pricing decisions within the salesforce and other entities close to the point of purchase, and less centralization of upper-level management pricing decisions. Finally, as firms proactively or reactively enter multiple export markets to enhance their competitive position, the issue of gray market imports must be addressed (Assmus and Wiese, 1995). The rapid influx of businesses exporting to multiple markets (Aaby and Slater, 1989), and the demand for increased sales volume to take advantage of scale economies (Porter, 1980), will mandate greater vigilance in coordinating prices to avoid unauthorized imports. The greater the coordination, the greater the profits enjoyed by the exporting firm. The exploratory interviews also revealed some relevant insights on the choice of invoiving currency. While most managers avoid using importer or third-country currencies, some companies tolerate greater risk in order to gain competitive advantage over rivals. The ability to utilize multiple currencies also affords the firm some flexibility by proactively managing exchange rate shifts (Samiee and Anckar, 1998). Plus, as overseas buyers increase their understanding of cross-national trade, they may become less willing to bear currency risks themselves, particularly in highly competitive markets, where exporters must diligently protect key accounts from other firms. A willingness to
invoice in currencies other than the exporter's only increases the chance of enhancing customer portfolios and increasing sales. All this suggests: P8. Performance of the export market venture is enhanced when: the firm's use of price as a competitive tool is high; the use of market-based pricing is high; the degree of senior management control of pricing is low; the degree of price flexibility is high; the degree to which management seeks price coordination across country markets is high; and the use of customer-preferred currency in pricing is high. Conclusion and directions for future research Traditionally, many firms have treated the pricing of exports as an afterthought. Similarly, researchers have considered export pricing a minor aspect of overall pricing strategy. How pricing enhances the competitive positioning of a product or the economic success of an export venture has yet to be explored, despite general agreement that it is a critical component of an export marketing strategy. Today, managers must take a more systematic and proactive approach to setting prices for export markets, due to an increasingly competitive global environment, a need for expansion into foreign markets to augment market share and economies of scale, complex government regulations worldwide, and gray market considerations. This article sets the stage for a more analytical and deliberate approach to export pricing by: * identifying relevant variables as antecedents to an EPS and developing a conceptual framework for addressing their relationship to export performance; and * advancing research propositions that should allow empirical tests of these relationships in future research. From a policy standpoint, the evaluation of both external environmental factors and internal organizational characteristics, as initially described by Cavusgil and Zou (1994), is critical for managers exporting to overseas markets. They must understand that an EPS is determined by a dynamic set of variables and that a successful venture requires thoughtful and timely response to constantly shifting economic, competitive and customer-related forces. Future research can advance knowledge of export pricing in at least two ways. First, our conceptual framework identifies a number of antecedent variables in the relationship between pricing strategy and performance. Yet, the list of situational factors involved in decision making is almost endless (Achrol et al., 1983). We have limited our attention to those considered most relevant in an export context in order to create a generalizable and manageable framework, but future studies may indicate others or a different emphasis. Second, we have concentrated solely on the structural aspects of export pricing to upperand midstream customers in the value chain rather than to end-users. Future work could focus on export prices from the perspective of ultimate customers.
At the operational level, research is needed on the complex interrelationship between export pricing and performance as well as on the extent to which management strategy choices and pricing practices are responsible for firm performance. Our study has provided a foundation for exploration of: * "best" practices in export pricing; * the role of the firm, product, industry, foreign market, and other environmental factors in setting EPS; and * how managers should make decisions about export pricing. It is hoped that scholars will respond to the call for more work in this important area. In this context, Table I presented a list of relevant constructs, suggested measures, and supporting literature. Empirical research along these lines would give us a more comprehensive picture of the export-pricing environment and allow a more exact evaluation of the relationship between EPS and performance. [Footnote] Notes
[Footnote] 1. Much of the discussion regarding pricing objectives of the firm is based on the work of Diamantopoulos (1991), whose analysis and discussion of this complex area are by far the most comprehensive within the management-oriented pricing literature (see also Diamantopoulos and Mathews (1995, pp. 48-61)). 2. Here we view cost-based and market-based export pricing to be dichotomous variables. While market-based pricing does often incorporate cost factors in price determination, it is distinct in that market and customer related issues drive the determination of price. Costbased pricing is driven solely by the underlying costs of the product. 3. When discussing the effects of foreign currency volatility on export pricing strategies, we follow the work of Mathur and Loy (1984) and assume that the efficiency of the firm is not such that currency pass-through problems are alleviated through the use of foreign currency futures and other strategies.
[Footnote] 4. This article posits that EPS is determined by internal forces, such as firm and product characteristics, as well as external forces, such as industry and export market characteristics. EPS mediates between these forces and export performance; it partly determines the success of the venture. A significant amount of research has shown, however, that several direct effects between internal/external forces and performance can be expected. Cavusgil and Zou (1994) found that international competence, managerial commitment, and the marketing decision variables have a direct effect on export performance. Studies of export pricing also indicate that international competence and
managerial commitment will directly affect performance. Similarly, in the strategy literature, environmental uncertainty (the degree of dynamism and unpredictability) has been shown to affect performance (Miller and Droge, 1986; Zeithaml et at, 1988). Since this paper concentrates on the EPS of the firm, we do not include these linkages in the framework; however, it is understood that these relationships do exist.
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[Author Affiliation] Matthew B. Myers
[Author Affiliation] University of Oklahoma, Norman, Oklahoma, USA S. Tamer Cavusgil
[Author Affiliation] Michigan State University, East Lansing, Michigan, USA, and Adamantios Diamantopoulos Loughborough University, Loughborough, UK
Indexing (document details) Studies, Pricing policies, Exports, Multinational Subjects: corporations, Marketing management Classificatio 9130 Experimental/theoretical, 1300 International trade & foreign investment, 9510 Multinational corporations n Codes Author(s): Matthew B Myers profile, S Tamer Cavusgil profile, Adamantios Diamantopoulos Author Affiliation: Matthew B. Myers University of Oklahoma, Norman, Oklahoma, USA S. Tamer Cavusgil Michigan State University, East Lansing, Michigan, USA, and Adamantios Diamantopoulos Loughborough University, Loughborough, UK Document types: Publication title: Feature European Journal of Marketing. Bradford: 2002. Vol. 36, Iss. 1/2; pg. 159, 30 pgs
Source type: Periodical ISSN: ProQuest document ID: Text Word Count Document URL: 03090566 203736691
12297 http://proquest.umi.com.proxy.consortiumlibrary.org/pqdlink?did=20373 6691&Fmt=3&clientId=23364&RQT=309&VName=PQD
From the outset of our firms our companys development, PERIOD 0 Argentina manufacturer sales totaled USD363.6 million. Manufacturer sales totaled ARS1580.0 million. Advertising expenditures totaled ARS23.4 million. AllStar is the market leader with ARS459.9 million in sales. Caremore has introduced a new product: Kids/Small/Tube/Paste. Evers has introduced a new product: White/Large/Tube/Gel. Brazil manufacturer sales totaled USD1048.8 million. Manufacturer sales totaled BRL1907.5 million. Advertising expenditures totaled BRL59.8 million. AllStar is the market leader with BRL578.8 million in sales. B + B has introduced a new product: Kids/Small/Tube/Gel. Caremore has introduced a new product: Kids/Small/Tube/Gel. Evers has introduced a new product: White/Medium/Pump/Gel. Chile manufacturer sales totaled USD215.9 million. Manufacturer sales totaled CLP100876.6 million. Advertising expenditures totaled CLP12.3 million. Regionals is the market leader with CLP24301.7 million in sales. Caremore has introduced a new product: Kids/Medium/Tube/Gel. Evers has introduced a new product: White/Small/Tube/Gel. Evers has introduced a new product: White/Medium/Pump/Gel.
PERIOD 0 Worldwide recession impacts Latin American growth. Mexico is especially hard hit because of their dependence on a strong US economy for exports.
Argentina manufacturer sales totaled USD165.3 million. Manufacturer sales totaled ARS622.2 million. Advertising expenditures totaled ARS11.1 million. Locals is the market leader with ARS296.1 million in sales. Driscol has entered the market. Driscol has introduced a new product: Economy/Medium/Tube/Paste. Driscol has introduced a new product: Economy/Large/Tube/Paste. Regionals has introduced a new product: White/Medium/Tube/Paste. Brazil manufacturer sales totaled USD507.9 million. Manufacturer sales totaled BRL1027.2 million. Advertising expenditures totaled BRL53.2 million. Locals is the market leader with BRL251.1 million in sales. Evers has entered the market. Caremore has introduced a new product: White/Medium/Pump/Paste. Driscol has introduced a new product: Healthy/Medium/Tube/Paste. Evers has introduced a new product: White/Small/Tube/Paste. Evers has introduced a new product: White/Medium/Tube/Paste. Locals has introduced a new product: Healthy/Small/Tube/Paste. Regionals has introduced a new product: White/Medium/Tube/Paste. Chile manufacturer sales totaled USD99.8 million. Manufacturer sales totaled CLP56681.4 million. Advertising expenditures totaled CLP3.6 million. Locals is the market leader with CLP31159.9 million in sales. B + B has entered the market. B + B has introduced a new product: White/Small/Tube/Paste. B + B has introduced a new product: White/Medium/Tube/Paste. Locals has introduced a new product: Economy/Medium/Tube/Paste.
Navigating Latin American Distribution Channels Evette Treewater, John Price. Logistics Today. Cleveland: Sep 2007. Vol. 48, Iss. 9; pg. 1, 8 pgs Abstract (Summary) Developing a profitable go-to-market strategy in Latin America is no easy task given the multitude of consumer sales channels at work. In urban areas, the arrival of modern retailers in the form of global supermarket, hypermarket and club stores has shaken up traditional channels made up of owner-operated independent retailers built upon inefficient layers of intermediaries. B2C e-commerce has certainly changed the way Latin Americans buy travel services and read newspapers; however, marketers would be mistaken to abandon independent and informal channels of retail that still represent more than three-quarters of Latin American retail for fast moving consumer goods. Instead, successful marketers must master multiple channels, even at the risk of cannibalizing their own sales in a single channel. Formal Latin American retail sales are expected to
reach US$1 trillion in 2010. Understanding how channel structure will look three years from now warrants study of what is driving the growth or decline of each channel. Jump to indexing (document details) Full Text (3559 words) Copyright Penton Media, Inc. Sep 2007 [Headnote] Reshaping Latin Markets
Latin American retail markets are developing rapidly, driving changes in distribution channels which will shape logistics in the region for years to come. Retail sales in Latin America are expected to hit $1 trillion in 2010. In the three years it takes to reach that threshold, the channel structure will change and evolve. Growth in one channel may balance the decline of another. Modern retailers have been migrating to urban areas, shaking up traditional channels. But much of the region will still be served by the owner-operated, independent retailer whose business is based on layers of intermediaries. Non-store consumer sales are on the rise, but electronic commerce is still lagging most other channels, accounting for only 1% of retail sales. Developing a profitable go-to-market strategy in Latin America is no easy task given the multitude of consumer sales channels at work. In urban areas, the arrival of modern retailers in the form of global supermarket, hypermarket and club stores has shaken up traditional channels made up of owner-operated independent retailers built upon inefficient layers of intermediaries. B2C e-commerce has certainly changed the way Latin Americans buy travel services and read newspapers; however, marketers would be mistaken to abandon independent and informal channels of retail that still represent more than three-quarters of Latin American retail for fast moving consumer goods. Instead, successful marketers must master multiple channels, even at the risk of cannibalizing their own sales in a single channel. Formal Latin American retail sales are expected to reach US$1 trillion in 2010. Understanding how channel structure will look three years from now warrants study of what is driving the growth or decline of each channel. * Independent (non-chain) retailers account for 60% of all instore retail but are gradually losing market share to modern retailers in the area of fast moving consumer goods. * Modern retail comprises roughly 40% of in-store retail sales, mainly through hypermarkets and supermarkets. Middle-to-upper- income consumers generally prefer modern retailers. Mass consumer segments continue to prefer shopping through
independent retailers and informal channels (street vendors, markets) but will gravitate to modern retail as wages, car ownership and credit card penetration grows. * The direct (or multi-level) sales format has proven to be very effective in Latin America, accounting for roughly 75% of nonstore retail sales. The channel is particularly effective for selling cosmetics and health products. * E-commerce constitutes 15% of non-store sales but less than 1% of total retail. Online sales are growing faster than any other channel. However, challenges in delivering physical products limit the viability of e-commerce to digital products (travel, music, software) as well as hard-to-find IT hardware. * Home shopping (catalogue and infomercial sales) accounts for about 9% of non-store sales and will continue to lose market share as it is easily replaced by internet sales. * The informal economy remains the most important channel for distributing goods to consumers, accounting for an estimated 50% fast-moving consumer goods (See Figure A). In spite of the inroads made by modern retailers, the informal economy continues to exist on a scale that is a testament to Latin American governments' failure to streamline formal business regulations. In-Store Retail: Independent vs. Modern Independent retailers continue to account for the majority of formal retail sales in Latin America, but modern retail has significantly changed purchasing patterns in large urban areas. This is especially true in fast moving consumer goods such as grocery purchases. Latin American consumers have traditionally purchased meats, produce and packaged goods from different shops, requiring regular trips to multiple locations. Consumers are generally moving toward infrequent, large purchases at super/hypermarkets supplemented by frequent, smaller purchases at independent stores. The leverage modern retail chains have with suppliers helps to drive down prices. This creates a difficult environment for independent retailers but is an added benefit for consumers. Traditional Values Independent businesses still account for the majority of grocery sales in many countries, including Mexico (See Figure B), Argentina (See Figure C) and Colombia. Independent retailers have several competitive strengths: proximity, credit, the convenience of smaller size, and a personal touch. Importantly, they commonly extend credit to liquidityconstrained customers, allowing them to pay after they receive wages. Because of low overhead costs, independent retailers do not have to serve a large consumer base. They are located where modern retailers have not ventured-rural areas and small cities-and fill in gaps around the footprint of modern stores in urban areas. In Mexico, for example, there are over 500,000 independent retailers compared to 587 hypermarkets and 657 modern supermarkets. For households without cars, the local
independent grocer is typically the only real option for daily purchases even though some might make weekly shopping trips to modern retailers by taxi or public transportation. Not only are independent stores in closer proximity to the consumer, but less time is usually required to locate and purchase the items once inside the store. For these reasons, impulse purchase goods continue to favor independent retailers. In Mexico, familyowned stores account for a little over 50% of total retail sales compared to 80% of carbonated beverage sales (McKinsey). The story repeats itself in Colombia, where independent retailers captured 95% of all retail beer sales. In Mexico, 80% of all retail customers shop at an independent grocer at least once a week; however, independent retailers are losing ground to modern formats. In local currency terms, independent grocers saw sales shrink slightly from 2004 to 2006 while discounter, supermarket and hypermarket sales expanded 29%, 18% and 6% respectively. Consumers spend an average of Mx$215 (US$20) at a supermarket compared to Mx$35 (US$3.25) at the local grocer. The Mexican Center for Micro and Small Business Studies estimates that as many as 50 independent retailers close for every one new supermarket or hypermarket in the same urban area. Independent retailers weathered the Argentine crisis better than any other category and reaped the benefits of recovery by increasing sales 130% from 2002 to 2006. Customers became extremely price-conscious and avoided modern retailers because of perceived higher prices. Modern retailers were severely constrained by a protective law passed during the crisis that limited the construction of new retail outlets based on size. Domestic chains like Coto halted expansion to focus on debt restructuring. French-owned Auchan finally pulled out in 2004 from complications arising from the crisis. Its stores were sold to Spain's San Jose and most recently were acquired by Wal-Mart. Modern Conveniences Modern supermarkets offer consumers an alternative shopping experience marked by unprecedented brand selection, bulk pricing and a well-lit, climate-controlled shopping experience. Most importantly, consumers can save time by purchasing a wide range of goods under the same roof. Hypermarkets take the concept further by combining grocery and department store shopping. Discounters (club stores) were the last to arrive and have consequently grown swiftly in popularity in most markets, with CAGRs of 40% in Brazil, nearly 18% in Argentina and 30% in Colombia since 2001 thanks to rapid new store growth. Brazil boasts a more mature modern retail sector due to a wave of market entry by modern retailers in the late 1990s, helping to create a 4% increase in total retail productivity per year afterwards (See Figure D). Hypermarkets are well-disseminated, hold the top position in sales for all retail categories and still grew at a faster rate than all other retailers in 2006; however, there is massive underreporting of cash sales by independent retailers in an effort to lower tax payments. Modern retail giants include Po de Acar, Carrefour and Wal-Mart. Wal-Mart is investing the most aggressively to the
tune of US$400 million in 2007. With a solid foothold in the A and B+ income segments, modern retailers are eyeing a largely untapped market: B- and C consumers who represent 53% of Brazilian households and 52% of food consumption. Incomes are on the rise and studies suggest that the viable mass market share of consumption should increase from 48% in 2004 to 60% by 2009 (See Figure E). A recent survey found that 60% of added income for these Brazilian consumers would be devoted to better quality and higher quantity of food. The average consumer in the rest of the world comparatively spends 60% of any additional income on non-food items. Modern retailers are responding with a segmented strategy. Po de Acar acquired a line of heavily discounted supermarkets in Northeastern Brazil called CompreBem to target lower income consumers and another of the same ilk in Southeast Brazil named Barateiro, whose name was changed to CompreBem to form a national chain. Wal-Mart adopted a similar strategy with their Todo Dia stores. Carrefour not only began a discount supermarket, Dia, but allowed independent retailers to join the chain. Mexican consumers prefer the larger forms of modern retail- hypermarkets and discounters-to supermarkets. Their combined sales were almost four times modern supermarket sales for 2006. Wal-Mart is the leading operator of hypermarkets in Mexico, accounting for 27% of all hypermarket sales. It is the last major foreign operator standing since Carrefour sold out to Mexico's Chedraui in 2005. Argentina is shifting back to modern retail, which currently accounts for 39% of consumer goods sales. Major players include Cencosud of Chile, Carrefour, the local conglomerate Coto, and Wal-Mart. Hypermarkets, supermarkets, and discount stores have extremely high penetration among the upper and middle classes, and they are trying to broaden their customer base. Colombia is emerging as another significant retail market, anticipating an annual growth rate of 12% in sales this year (EIU). The top five modern retailers, including Carrefour and Casino, account for 37% of the total retail market (AT Kearney). Independent retailers hold a majority market share and earned a CAGR of 8% from 2001-2006 (faster than supermarkets at 5%) but were still outpaced by hypermarkets at 19% and discount stores at 29% (See Figure F). Non-Store Retail Non-store retail methods, such as home shopping (largely composed of infomercial and catalogue sales), direct sales and online retailers are also benefiting from rising disposable incomes in Latin America (See Figure G). The middle class in Latin America is growing in real and relative terms for the first time in 30 years and they represent the target market for direct sellers, the leading category within the non-store retail channel. Home Shopping
Home shopping was never a strong channel in Latin America due to obstacles such as fraud, lack of credit and unreliable postal systems that made fulfillment challenging. Catalogue sales have grown very modestly in most of Latin America. Infomercials are, however, increasing in popularity with growing cable TV usage (See Figures H, I and J). In Argentina, they are regaining ground with recovered cable usage after the 2001 crisis. Mexicans spent Mx$1.5 billion (US$138.6 million) on infomercial purchases in 2005, but registered only 3% growth from the previous year. Home shopping's share of total retail is declining due to rising penetration by modern retailers, internet shopping and direct sales. Internet retail has already surpassed home shopping in Chile and Brazil, and is expected to do so in Argentina and Mexico in 2007 or 2008. Direct (Multi-level) Sales Direct sellers in Latin America secured 28% of cosmetics/toiletry retail sales for 2006. This sales method is well-established in most countries and we forecast it to grow by 18% annually in 2007. Direct sales representatives in Latin America totaled 5.6 million individuals, of which 80% are women. Representatives can earn or supplement their income from home with flexible hours. They have access to rural and lower income consumers out of reach of modern retailers. Direct sales face less competition from internet sales than home shopping because of the loyal customer base and personal touch, not to mention the lack of internet penetration amongst SES C and D. Representatives not only distribute products but also provide personal beauty or health consultations for their customers. Brazil's direct sales increased 26% in 2005 alone, partly due to an influx of "Brazilian" cosmetic and ecopharmacy products with all natural domestic components. Natura Cosmeticos, positioning itself as progressive and environmentally sensitive, released 225 of these new products last year. High profile introductions include Diversa, with novel refillable packaging, and a unisex fragrance derived from essential oils. Natura has grown to be a regional player with direct sales operations in Mexico, Argentina, Chile, Peru, Venezuela and Colombia, challenging global heavyweights like Unilever, Avon, Este Lauder and Mexico's Jafra Cosmetics International. Mexican direct sales reached Mx$33.4 billion (US$3 billion) in 2005, an 8% growth over the previous year. Vitamin and dietary products represent 11% of direct sales in Mexico. In Argentina, direct sales companies had to rebuild their representative and customer bases after economic hardship forced many of them to seek alternative employment. Direct sales are forecast to grow proportionally with disposable income. Internet Retail B2C ecommerce is gradually emerging as a viable channel thanks to increased internet penetration in Latin America. Currently, 16% of the population has access to the internet. Among the region's top five countries for internet usage, online retail was the fastest growing non-store retail category for 2000-2005 and is expected to hold the title through
2010. Visa Latin America alone registered US$2billion in B2C online transactions in 2005, an increase of 52% from the previous year. Total online credit card sales reached approximately US$7 billion by the end of 2006. A favorable investment environment, combined with political and economic stability, is needed for steady internet growth so that investors can bet long-term on rolling out infrastructure to a wide market. Argentina had invested in internet infrastructure before the economic crisis in 2001 so internet usage grew rapidly during recovery; however, over half of current internet users are concentrated in Buenos Aires. Colombia still has low internet penetration, reaching only 13.2% in 2006. Chile, the most economically stable performer over the past decade, also has the highest internet penetration (See Figue K). Online sales are forecasted to surpass direct sales by 2009. Online sales have been concentrated in the areas of travel, electronics and downloadable media, much like the US internet retail market in the 1990s. Products that are digitally transferred (air plane tickets, music, software) do not face the delivery challenges of physical goods. Stores keep very low stock on IT products, so their consumers often purchase them online. Recently, categories like government services and education have seen increased online transactions. Consumers have greater confidence in the security of online transactions because of measures taken by the government, financial institutions and electronic payment systems. Low credit card penetration has constrained B2C internet sales in many countries like Columbia and Mexico; however, credit levels are growing by over 20% annually across Latin America according to our estimates, and will prove less of a constraint in the future. Going forward, the biggest impediment to B2C internet sales will be limited in-home computer penetration. In 2004, only 17.4% of Mexican households owned a computer. The Informal Market The informal market is, by nature, hard to quantify. According to a McKinsey study in 2007, the informal economy across Latin America represents 38% of the region's true GDP. In the retail, one of the most visible segments of the sector, informal channels represent about 50% of all retail sales. The informal economy is defined by the International Labor Organization as "all economic activities by workers and economic units that are-in law or in practice-not covered or insufficiently covered by formal arrangements." This includes unregulated selfemployment, employment and business enterprises (See Figure L). Avoiding formal regulations affords these individuals and businesses higher earnings (at least in the shortterm), but it also creates low-cost (some would say unfair) competition in the market. The main reason informal retail channels thrive in Latin America is the overbearing presence of government in the formal sector. It is fair criticism to say that too many segments of government in Latin America do not exist to facilitate business but are there to tax it and complicate it, creating revenue and opportunities for graft in the process.
Most entrepreneurs in Latin America cannot afford to comply with all the rules set by government and eventually drive their businesses into the informal sector. Brazil is a shining example of wasteful governmental interference in the formal economy. Registering a new business in Brazil takes on average 152 days, versus three days in the USA. A typical business in Sao Paulo must report seven different taxes four times per year. The present economic boom in Brazil is creating record employment growth. Unfortunately, an estimated 93% of new jobs are created in the informal sector. Brazil's formal private sector jobs are concentrated in the large companies that make up its industrial sector. Those companies are not fairing well as the overheated real makes their export sales uncompetitive. Meanwhile, the government must spend more to build infrastructure for its expanding economy but its formal sector tax base is failing to grow, forcing them to consider even higher taxes. The vicious cycle continues. Unemployment and underemployment make the informal sector attractive to many Latin Americans. The region faced a formal employment deficit of 126 million jobs in 2006. With birth rates beginning to drop in the late 1980s, most Latin American markets have a demographic bulge in the 15-25 year old age segment, precisely when people are looking for their first job. Not surprisingly, unemployment in that segment is 2-3 times higher than older age brackets. These young workers gravitate to the informal sector and dominate its numbers. The region's restrictive labor laws, which add to the cost of hiring, employing and especially firing, make companies reticent to hire young, unproven employees and lengthen the process of finding new employment for any age group (See Figure M). Argentina's labor flexibility is among the 20 lowest in the world. Displacement as a result of political violence has compounded the problem in Colombia. The country's National Administrative Department of Statistics estimates that 53% of the workers in Bogot are in the informal sector. Retail is the sector's largest category and comprises 33.5% of all informal economic activity. Informality is also fueled by mass urban migration in countries like Brazil and Mexico. Street commerce is one of the most visible and dynamic segments of the informal economy. Industry sources suggest that there is one street vendor for every 85 people in Mexico City and that many arrive on the street scene after the close of their independent grocery store. So Paulo is home to 10% of Brazil's total population and, of the economically active, 11% are street vendors. This enormous percentage reflects the huge compliance and operation costs of Brazilian retailing that are especially damaging to micro-enterprise. Governments have made strides to regulate street vendors in certain urban areas with moderate success. Vendors are usually affiliated with trade associations that band together to create substantial political power. In So Paulo alone there are 770 street vendor associations. This makes it easy for the government to communicate with street
vendors but difficult for it to enforce regulations because these politically organized groups can push back against zealous government tax policy makers. Brazil's massive informal economy comprises 42% of GDP. Approximately 55% of the workforce is in the informal sector. Informal retailers are part of a truly global network. Higher-end products like electronics, jewelry, and clothing are manufactured in China, enter Brazil illegally through Paraguay, and are distributed to informal retailers throughout the country. By avoiding Brazil's notorious tariffs and taxes, these retailers can offer prices that no formal retailer can match. Consumer goods manufacturers can move their products into this channel through club stores and cash-and-carry wholesalers. Informal vendors often buy their goods from modern retailers as opposed to independent wholesalers to take advantage of bulk pricing. Sam's Clubs are challenging cash-and-carry wholesalers in some areas. Street vendors of food often buy their supplies from hypermarkets or club stores to save money, especially if the location of those stores is convenient. The one great threat to the informal sector is the proliferation of consumer credit through greater credit card circulation. As more middle class consumers acquire their first credit card, they will be tempted to buy white goods, electronics, even clothing from formal retailers that accept their cards, enabling them to space out their spending over time. The combination of credit and more efficient hypermarkets in Chile and Mexico has already shown evidence of this trend as the informal market loses some of its share of the higher value products that can be challenging to finance in one single cash payment. However, the dent in informal sales in Chile and Mexico is just that - a small dent. The informal chain will reign supreme as long as Asian products remain subject to high import tariffs, VAT levels remain high and the greedy and inefficient hand of government continues to meddle with formal retailers. Channel Strategy Channel priorities change from product to product and may vary by market depending upon the penetration of modern sales channels. However, broadly speaking, the chart provides (see Figure N) some guidance as to where marketers should be focusing their sales efforts. [Author Affiliation] InfoAmericas (www.infoamericas.com) has three base offices, in Coral Gables, FL, Mexico City, Mexico and Sao Paulo, Brazil. Founded in 1993, the research firm helps companies develop solid business intelligence for implementing successful market strategies across Latin America and the Caribbean. This article was written by Evette Treewater, an InfoAmericas consultant and John Price, the company's president
Indexing (document details) Distribution channels, Retailing industry, Retail sales, Market strategy Subjects: Classificatio 8390 Retailing industry, 7000 Marketing, 9173 Latin America n Codes Locations: Author(s): Author Affiliation: Latin America Evette Treewater, John Price InfoAmericas (www.infoamericas.com) has three base offices, in Coral Gables, FL, Mexico City, Mexico and Sao Paulo, Brazil. Founded in 1993, the research firm helps companies develop solid business intelligence for implementing successful market strategies across Latin America and the Caribbean. This article was written by Evette Treewater, an InfoAmericas consultant and John Price, the company's president Feature Tables, Graphs, Diagrams, Charts Latin American Retail
Document types: Document features: Section:
Publication Logistics Today. Cleveland: Sep 2007. Vol. 48, Iss. 9; pg. 1, 8 pgs title: Source type: Periodical ISSN: ProQuest document ID: Text Word Count Document URL: 15471438 1341324871
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Factors influencing the degree of international pricing strategy standardization of multinational corporations Marios Theodosiou, Constantine S Katsikeas. Journal of International Marketing. Chicago: 2001. Vol. 9, Iss. 3; pg. 1, 18 pgs Abstract (Summary) In response to certain important gaps identified in the global marketing literature, a study investigates the pricing strategies followed by manufacturing subsidiaries of multinational corporations. Specifically, it attempts to identify the factors that play an important role in determining the degree of international pricing strategy standardization. The findings suggest that the extent to which multinationals standardize their international pricing strategies depends on the level of similarity between home and host
countries in terms of customer characteristics, legal environment, economic conditions, and stage of the product life cycle. The study highlights implications of the findings for business practitioners and discuss future research directions along with the limitations. Jump to indexing (document details) Full Text (6445 words) Copyright American Marketing Association 2001 In response to certain important gaps identified in the global marketing literature, the focus of this inquiry is an investigation of the pricing strategies followed by manufacturing subsidiaries of multinational corporations. Specifically, the authors attempt to identify the factors that play an important role in determining the degree of international pricing strategy standardization. The findings suggest that the extent to which multinationals standardize their international pricing strategies depends on the level of similarity between home and host countries in terms of customer characteristics, legal environment, economic conditions, and stage of the product life cycle. The authors highlight implications of the findings for business practitioners and discuss future research directions along with the limitations of the study. Increasing liberalization, interdependence, and competition in world economies have accelerated the need for multinational corporations (MNCs) to develop effective global strategies in their endeavor to achieve sustainable competitive advantage in international markets (Samiee and Roth 1992). Marketing has played a significant role in the advancement of the field of international business; marketing strategy constitutes a critical component of a firm's global strategy (Zou and Cavusgil 1996). The development of optimal programs for global markets is of vital interest to business managers who view international operations as a means of boosting corporate growth, improving competitive position, strengthening financial performance, and ensuring company survival and longterm viability in a highly globalized marketplace. In this context, the extent to which elements of the marketing program should be standardized across markets or adapted in order to accommodate different foreign market conditions, requirements, and preferences has received focal research attention at both the conceptual and the empirical level. The approach an MNC adopts has important implications because (1) it influences the MNC's ability to match its offerings effectively with the overseas market environments in which it operates, (2) it affects its long-term direction with respect to international operations, and (3) it determines the areas that should be prioritized in global resource allocation decisions (Jain 1989). Notwithstanding the long-standing interest in and many articles published on the topic, a review of the pertinent literature illustrates that scant attention has been devoted to investigating drivers of international pricing strategy standardization (Samli and Jacobs 1994). The vast majority of studies have focused on promotion (e.g., Harris 1994; Harvey 1993), product (e.g., Hill and Still 1984; Walters and Toyne 1989), and to a lesser extent distribution (e.g., Rosenbloom, Larsen, and Mehta 1997) aspects of the international marketing program. However, understanding the elements that influence the extent of standardization of international pricing strategy is vital, because standardization can affect firms' revenue and profitability levels and determine a product's foreign market
positioning (Czinkota and Ronkainen 1998). Furthermore, previous standardization studies have commonly been conducted at the headquarters level, and the perceptions and attitudes of subsidiary managers have largely been ignored. Nevertheless, subsidiaries play an important role in international marketing strategy formulation and implementation as a result of their closeness to the market and better understanding of local conditions. In view of these limiting empirical considerations, the primary interests of this investigation focus on the pricing strategies MNCs follow. Because the key consideration in international business operations is whether the marketing strategy should be standardized or adapted, we consider international pricing strategy along the standardization-adaptation continuum (Cavusgil and Zou 1994). Specifically, this empirical inquiry aims to investigate the factors that play an important role in influencing the degree of international pricing strategy standardization from the standpoint of subsidiary managers. The study begins with an overview of the standardization versus adaptation debate. This is followed by an examination of the factors that are potentially associated with pricing standardization and the development of specific research hypotheses. Next, we specify the research method employed, and then present and discuss the results of the study. Finally, we highlight managerial implications of the findings and limitations of the study, along with directions for further research. The degree to which international marketing programs must be standardized or customized has been a contentious issue for more than three decades now. A review of the pertinent literature identifies three schools of thought: the two extreme opposites of complete standardization versus complete adaptation and the "middle-of-the-road," or contingency perspective. These perspectives are examined next. The arguments in favor of marketing program standardization emphasize two main aspects. The first involves the drivers of standardization, defined as the developments in the international business environment that make standardization a feasible, or even inescapable strategy. The second aspect refers to the potential advantages that may result for a company that pursues a strategy of international marketing program standardization, advantages that make standardization a desirable alternative. Technological developments in the areas of communication and transportation, as well as increasing international travel by tourists and businesspeople, are considered driving forces behind the creation of a global village and thus a global marketplace (e.g., Elinder 1965). In a controversial article, Levitt (1983, p. 95) claims that in this new commercial reality, people around the world have the same needs and desires and that "almost everyone, everywhere, wants the things they have heard about, seen or experienced through the new technologies." Similarly, Ohmae (1985) refers to the emergence of the Tridians: the residents of Japan, the United States, and the European Union. These people have similar academic backgrounds, income levels, lifestyles, uses of leisure time, and aspirations; as a result, 600 million consumers in all parts of the Triad have strikingly similar needs and preferences. Other drivers of standardization discussed in the literature include the need of international firms to serve their multinational customers (Buzzell
1968; Douglas and Wind 1987), regional economic integration (e.g., North America and the European Union) (Walters and Toyne 1989), and the growth of international market segments with similar needs and preferences (Yavas, Verhage, and Green 1992). Proponents of standardization also emphasize several important benefits associated with the pursuit of this strategy. The most significant advantage of standardization is its contribution to the achievement of economies of scale and cost savings in production, research and development, and marketing (e.g., Keegan 1969). By fully exploiting the potential for economies of scale in all value-adding activities through marketing program standardization, international firms will be in a position to gain a significant advantage over their competitors by selling high quality products at lower prices (Levitt 1983). Other advantages of standardization proposed in the literature include the potential for rapid introduction of new products in international markets (Samiee and Roth 1992; Walters and Toyne 1989), the presentation of a consistent image across markets (Harvey 1993), the ability for worldwide exploitation of new and innovative ideas (Buzzell 1968; Quelch and Hoff 1986), and better coordination and control of international operations (Douglas and Craig 1986). The adaptation school of thought emerged essentially as a reaction to the arguments put forward in favor of standardization. First of all, many academics expressed their disagreement with Levitt's (1983) argument about a worldwide homogenization in needs and preferences, viewing it as overly simplistic, myopic, and contrary to the marketing concept (e.g., Boddewyn, Soehl, and Picard 1986; Douglas and Wind 1987). According to these authors, no hard evidence can be produced in support of Levitt's thesis (Douglas and Craig 1986; Onkvisit and Shaw 1990; Wind 1986). Cross-cultural empirical research has found significant differences in customer characteristics, preferences, and purchasing behavior among different countries (e.g., Diamantopoulos, Schlegelmilch, and Du Preez 1995). Second, critics of standardization have questioned the significance of economies of scale and the cost savings underlying this approach. On the one hand, technological developments in flexible manufacturing systems and computer-aided design and manufacturing facilitate production of customized products without major cost implications and reduction in the minimum efficient scale of production (Douglas and Wind 1987; Walters and Toyne 1989). On the other hand, it has been suggested that certain industries (e.g., packaged consumer goods) are less susceptible to manufacturing and research and development economies (Quelch and Hoff 1986). Moreover, several authors have claimed that even when cost savings can be made, their effect may not be significant if a large proportion of the total cost is determined by factors on which standardization has no impact (e.g., cost of raw materials and labor) (Douglas and Craig 1986). Third, according to critics of standardization, there is no evidence to suggest that customers have become more price conscious or that they are willing to trade off specific product features for lower prices. It has been argued that low price positioning is a
vulnerable strategy that may not lead to the achievement of sustainable competitive advantage (Douglas and Wind 1987; Wind 1986). Fourth, the decision whether to standardize does not depend on managerial discretion alone. Certain external (e.g., environmental, market, industry) and internal (e.g., organizational structure and processes) factors may limit the degree of standardization that a firm is able to apply (Boddewyn, Soehl, and Picard 1986). Such factors are responsible for mandatory adaptations, defined as the adaptations a company is obliged to make, because of either legislation and allied governmental regulations or inescapable and uncontrollable marketplace realities (Hill and Still 1984). Furthermore, some authors have indicated several important benefits that are likely to result from adapting international marketing programs to local market conditions. These include deeper penetration of foreign markets and thus increased market share and sales volume for the firm (Cavusgil, Zou, and Naidu 1993); enhanced motivation and morale of local managers (Douglas and Wind 1987; Quelch and Hoff 1986); and augmentation of firms' capabilities in analyzing and understanding foreign markets, monitoring market developments overseas, and quickly responding to shifts in customer preferences (Craig and Douglas 1996). Recent standardization literature has followed a more fruitful research avenue by supporting the contingency perspective of international marketing (e.g., Cavusgil, Zou, and Naidu 1993). According to this perspective, the difference between standardization and adaptation is in degree rather than in kind, and the two perspectives are viewed as occurring along a continuum on a bipolar scale (Onkvisit and Shaw 1987). Therefore, the challenge facing international marketing managers is to decide which marketing-mix elements they should standardize or adapt, under what conditions, and to what degree (Buzzell 1968; Jain 1989). The critical issue in designing international marketing strategies in the framework of contingency theory is to identify contextual factors that determine the appropriate degree of marketing program standardization and determine which individual marketing-mix elements are influenced by each factor and to what extent. In response to this challenge, academic researchers have examined the factors that play an important role in the determination of marketing program standardization, and several classificatory schemes have been proposed (e.g., Cavusgil, Zou, and Naidu 1993; Jain 1989; Johnson and Aruthanes 1995). A review of the extant literature suggests that these factors can be organized into four broad categories: (1) macroenvironmental factors, including economic, legal, cultural, physical, and demographic elements (Douglas and Wind 1987; Jain 1989); (2) microenvironmental factors, such as customer characteristics, attitudes, and behavior (Jain 1989); the structure and nature of competition (Cavusgil, Zou, and Naidu 1993; Ozsomer, Bodur, and Cavusgil 1991); and the availability, cost, and competencies of marketing intermediaries (Harvey 1993; Wind and Douglas 1986); (3) firm-specific factors, including the degree of centralization in decision making (Quelch and Hoff 1986;
Ozsomer, Bodur, and Cavusgil 1991), the relationship between headquarters and local subsidiaries (Jain 1989), corporate orientation (Perlmutter 1969), the firm's experience in international operations (Cavusgil, Zou, and Naidu 1993; Craig and Douglas 1996), and the subsidiary's ownership structure (Rau and Preble 1987); and (4) product and/or industry factors, such as the nature of product (Cavusgil, Zou, and Naidu 1993), stage of product life cycle (PLC) (Baalbaki and Malhotra 1995; Rau and Preble 1987), cultural specificity of the product (Cavusgil and Zou 1994; Quelch and Hoff 1986), product uniqueness (Cavusgil, Zou, and Naidu 1993), conditions and patterns of product use (Hill and Still 1984), product familiarity of foreign customers (Cavusgil, Zou, and Naidu 1993), and industry technology orientation (Quelch and Hoff 1986; Samiee and Roth 1992). In investigating the factors influencing the degree of international pricing strategy standardization, we attempted to include the largest possible number of relevant contingency variables. However, that the present study represents the first systematic endeavor to examine this issue using a descriptive, hypothetico-deductive research approach was a serious obstacle to this end. Although a large number of potentially important variables have been proposed by various authors at the conceptual level (as discussed in the previous section), only a limited number of these have been empirically tested. We therefore deemed it appropriate, from a methodological point of view, to limit our effort to the examination of contingency variables whose relevance had been established in previous standardization studies and that could be linked specifically to the degree of international pricing strategy standardization pursued by MNCs. Accordingly, a review of the limited empirical evidence, combined with relevant conceptual work, revealed five factors that are potentially important in influencing the extent to which MNCs standardize their international pricing strategy: economic environment, legal environment, distribution infrastructure, customer characteristics and behavior, and stage of PLC. The relevance of each factor is considered next. The economic conditions prevailing in a host country can influence pricing decisions in several ways, because they determine demand potential for a particular product and have a significant impact on a firm's cost structure. On the demand side, the overall level of economic and industrial development of a country determines customers' priorities in terms of the products they consider essential, in addition to the prices they are able and willing to pay for certain products (Jain 1989). For example, a product considered essential in a developed country may be viewed as less necessary or even as a luxury item in a less developed country (Hill and Still 1984). Moreover, demand for a product at different price levels is a function of the purchasing power of targeted customers, which is determined by the level of economic development of the country (Jain 1989). On the cost side, the economic environment of the host country determines the cost of raw materials, labor, energy, and other resources a firm needs to purchase or hire in order to carry out its everyday operations (Douglas and Wind 1987; Samli and Jacobs 1994). The level of such costs has a direct impact on the overall cost structure of local subsidiaries. Thus, the pricing policy pursued by an international firm in a particular foreign market should reflect these factors. We therefore advance the following:
H1: The greater the similarity in the economic environment between an MNC's home and host countries, the higher is the degree of pricing standardization. Empirical research has shown that differences in government laws and regulations across markets are among the major obstacles to standardization (Baalbaki and Malhotra 1995; Cavusgil, Zou, and Naidu 1993). A common law found in many countries that directly influences pricing is retail price maintenance, which requires firms to sell certain products at specified prices. The purpose of such laws is either to protect customers from unfair exploitation or to ensure that certain sensitive products (e.g., pharmaceuticals) are easily accessible to almost everybody in the population. Governments may also impose price controls on certain products to protect local producers from international competition that is deemed unfair. Furthermore, pricing is influenced indirectly by laws and regulations that necessitate product modifications in compliance with different technical specifications; health and safety standards; environmental protection acts; electric, weight, and measurement systems; and the like that may prevail in foreign markets (Buzzell 1968; Cavusgil, Zou, and Naidu 1993; Douglas and Wind 1987). To make the required modifications, firms incur extra costs, which forces them either to charge higher prices or to compress their profit margins. We therefore expect the following: H2: The greater the similarity in government laws and regulations between an MNC's home and host countries, the higher is the degree of pricing standardization. International firms often must rely on existing distribution channels to distribute their products in foreign markets. Therefore, the number, type, competencies, costs, and margins of the intermediaries involved in the process of transferring the product from the point of production to the end user have a significant effect on a firm's cost structureparticularly if the distribution cost constitutes a significant proportion of the total cost. This, in turn, may influence price levels, profit margins, and allied international pricing policy elements (Buzzell 1968). For example, if the distribution channel used in a particular foreign market involves a greater number of intermediaries or channel members are less competent and efficient than those in the domestic market, a significantly higher cost will be added to the product by the time it reaches the end user. The additional cost incurred is likely to result in higher final selling prices and/or reduced profit margins for the firm. Under such circumstances, a firm may also decide to modify other elements of its international pricing policy, including sales and credit terms and discounts offered. It is therefore possible to hypothesize the following: H3: The greater the similarity in the distribution infrastructure between an MNC's home and host countries, the higher is the degree of pricing standardization. The extent to which an MNC will achieve its objectives in a particular foreign market will depend largely on its ability to satisfy the needs and preferences of target customers. Therefore, a careful examination of overseas customer characteristics and purchasing behavior is essential in selecting an appropriate pricing strategy for a specific foreign market. Price level is among the most important criteria used by customers in evaluating
competing products (Levitt 1983). However, not all customers are price sensitive; other criteria (e.g., product quality and performance) may be equally or even more important to certain customers (Douglas and Wind 1987). Therefore, in developing its pricing policy, an MNC must be aware of foreign customers' preferences, perceptions, and purchasing behaviors with respect to various price levels. A standardized pricing policy is more appropriate if domestic and foreign customers place an equal emphasis on and have similar perceptions of price. This is more likely to happen when a company is targeting similar customer segments in domestic and foreign markets (Jain 1989). Therefore, we suggest the following: H4: The greater the similarity in customer characteristics and purchasing behavior between an MNC's home and host countries, the higher is the degree of pricing standardization. The stage of PLC is a fundamental variable affecting business strategy (Anderson and Zeithaml 1984). The life cycle of a product consists of four major stages-introduction, growth, maturity, and decline--and marketing strategy programs differentiate across the various stages. Several empirical studies demonstrate the important role PLC plays in determining the degree of international marketing strategy standardization (Baalbaki and Malhotra 1995; Johnson and Aruthanes 1995). Because of possible differences in economic and market development levels among countries, some products may be at different stages of their life cycles in different countries (Buzzell 1968). As a result, MNCs may need to modify their pricing programs to take account of particular local market conditions (Rau and Preble 1987). The significance of such an approach diminishes in circumstances in which there is no difference in a product's life cycle stage between the domestic and international markets (Sorenson and Wiechmann 1975). We therefore hypothesize the following: H5: The greater the degree of similarity in the stage of PLC between an MNC's home and host countries, the higher is the degree of pricing standardization. We gathered data for this study from a mail survey of manufacturing subsidiaries of MNCs operating in the United Kingdom. We developed the sampling frame for this study using the Financial Analysis Made Easy electronic database of U.K. firms. We identified 706 manufacturing subsidiaries of MNCs, which originated mostly from the United States, Germany, and Japan. We then contacted each of these firms by telephone to ensure that the correct address of each company was available, discover whether there was a product or product line that both the parent firm and its U.K. subsidiary produced and marketed in their home markets, identify the person in each company who was the most qualified to provide the required information (i.e., the key informant), and encourage respondent participation in the survey. Upon completion of the telephone contacts, we excluded 201 firms for a variety of reasons, including an absence of common products in the portfolios of the parent firm and its U.K. manufacturing subsidiary, a company policy of not taking part in external research studies, a change in the firm's status as a result of a merger or acquisition, or the unavailability of correct contact details. In 505 of the 706 (72%) firms, we identified individuals who met the knowledgeability criterion for key informants and were willing
to participate and whose companies had a product or product line that the parent firm also manufactured and marketed in its own domestic market. All these firms were targeted in this research. We developed the questionnaire used in this research in several steps. We initially reviewed the relevant literature and simultaneously conducted exploratory interviews with executives in subsidiaries of MNCs to identify items for operationalizing the constructs under investigation. We designed a preliminary questionnaire, which we then asked several academic researchers in the field of international marketing to evaluate; they served as expert judges to appraise the face validity of the items selected. Finally, we extensively pretested and refined the revised questionnaire in personal interviews with managers in subsidiaries of MNCs, which thus assured content validity. Cavusgil and Zou (1994) argue that any study on international marketing strategy standardization conducted at the overall company level is likely to result in confounded and thus unreliable findings. This is because international firms often employ different marketing strategies across countries and product-markets. Therefore, in addressing this problem in the study of pricing strategy standardization of MNCs, we adopt the product or product line as the unit of analysis. Specifically, we ask respondents to answer the questions of the research instrument with reference to a particular product or product line their company (i.e., the subsidiary) is manufacturing and marketing in the United Kingdom but that is also manufactured and marketed by the parent firm in its home market. The extent of international pricing strategy standardization was measured on the basis of five items (see Table 1). Respondents were asked to compare the pricing policy followed by the subsidiary with that pursued by the parent company in its home market. A sevenpoint rating scale, anchored by "very different" (1) and "very similar" (7), was used to capture individual responses. Regarding the factors that potentially influence pricing strategy standardization, a set of items was used to measure the degree of similarity in economic and legal environments, customer characteristics and behavior, and distribution infrastructure between the U.K. market and that in which the parent firm was based (see Table 2). Again, responses were captured on a seven-point scale ranging from "very different" (1) to "very similar" (7). Following Kotabe and Omura (1989) and Johnson and Aruthanes (1995), a single item was employed to assess the extent to which the focal product or product line is in the same life cycle stage in both the United Kingdom and the parent firm's home market. A seven-point scale, anchored by "strongly disagree" (1) and "strongly agree" (7), was used to measure participant responses. The guidelines of the total design method (Dillman 1978) were followed to enhance respondent participation in this mail survey. A copy of the questionnaire, together with a self-addressed, postage-paid envelope and a cover letter, was personally mailed to the key informant in each target firm who had been identified during the telephone contacts.
Reminder/thank-you postcards to all managers and two additional follow-up mailings, followed by two further reminders, produced 129 usable responses. Therefore, a satisfactory response rate of 26% was achieved. Table 1.
Table 2.
To assess possible nonresponse bias, we followed Armstrong and Overton's (1977) formal extrapolation procedure, which is based on the contention that, as contrasted with early respondents, late respondents are more likely to be similar to nonrespondents. Using a t-test under the assumptions of both equal and unequal group variances, we found no significant between-group mean differences between the early and late respondent groups with regard to any of the variables examined in the study. We therefore conclude that nonresponse bias is not likely to be a problem in this research. Scatter diagrams and bivariate correlation analyses pertaining to (1) the international pricing strategy standardization indicators and (2) the external elements that potentially influence the degree of pricing standardization indicated that certain items were highly correlated. Principal components analysis was thus employed in each set of items to explore the presence of an underlying structure in the data. Table 1 exhibits the results of principal components analysis for the international pricing strategy standardization items. When we used an eigenvalue of one or greater as the factor selection criterion along with the screen test, a single-factor solution emerged that explained nearly 70% of the total variance. Table 2 shows the principal components analysis results with respect to the environmental elements that potentially influence the degree of pricing standardization. A four-factor solution emerged that accounted for approximately 67% of the total variance. The solution featured strong individual loadings on each factor, enabling straightforward interpretation. The four factors have been labeled legal environment, customer characteristics, economic conditions, and distribution infrastructure. Factor scores were then computed for all five factors that emerged for use in subsequent analysis. Multiple regression analysis was used to estimate the relationships of economic conditions, legal environment, distribution infrastructure, customer characteristics, and stage of PLC (independent variables) with subsidiary performance (dependent variable), thus testing H1-H5. As shown in Table 3, both the goodness-of-fit and explanatory power of the estimated regression model were acceptable. The analysis revealed four significant, positive relationships in the equation, pertaining to customer characteristics, legal environment, economic conditions, and PLC stage. These results suggest that the degree of international pricing strategy standardization of MNCs is influenced by the level of similarity between home and host countries in terms of customer characteristics, legal environment, economic conditions, and PLC stage. No relationship was established
between similarity in distribution infrastructure and pricing standardization. Therefore, it can be concluded that H1, H2, H4, and H5 are validated and H3 is rejected. Despite the substantial amount of research attention devoted to the subject of marketing program standardization in international markets, little empirical work has been undertaken examining the issue of standardization within the context of MNCs' pricing strategy. To contribute toward filling this void in the global marketing literature, the focus of the present study is the nature of pricing strategies followed by MNC manufacturing subsidiaries and the identification of the factors that drive the extent of international pricing strategy standardization. The study found that the majority of the participant MNC subsidiaries adopt a relatively high degree of pricing strategy standardization. This is signified by the mean scores, standard deviations, and one-sample t-test results for the items used to measure the pricing standardization construct (see the Appendix). This evidence may be attributed to the fact that the vast majority of the sample firms originate in the United States, Germany, Japan, or another developed nation. These countries have considerable resemblance to the United Kingdom in their levels of economic, industrial, and market development, and this similarity is conducive to the pursuit of international pricing standardization. However, previous research shows that a high level of pricing standardization is uncommon among MNCs that operate in less developed host market contexts compared with their home market bases (e.g., Ozsomer, Bodur, and Cavusgil 1991). Notably, our findings appear to suggest that the opposite is true for MNCs domiciled in a developed country and operating in another developed country. Regarding the determinants of pricing standardization, the results indicate that the extent to which MNCs standardize their international pricing strategies depends on certain environmental and market conditions-the degree of similarity between a firm's home and host markets in terms of economic conditions, legal environment, customer characteristics, and stage of PLC. These findings are consistent with earlier research efforts that have examined determinants of standardization, but within the framework of an overall marketing strategy (e.g., Douglas and Wind 1987; Jain 1989; Johnson and Aruthanes 1995; Samiee and Roth 1992; Samli and Jacobs 1994). However, the level of similarity in the distribution infrastructure between home and host countries was found, contrary to expectations, not to play an important role in the determination of the degree of international pricing standardization. One possible explanation for this result is that distribution costs represent a minor component of the product's total cost and, in turn, have no significant effect on the international pricing strategies of the participant MNCs. Nevertheless, this is an issue that warrants further empirical investigation. Managerial decision making regarding standardization or customization of pricing strategies in international markets should be based on a thorough analysis and assessment of the degree of similarity (or difference) between the firm's home and host markets. In this regard, four factors-customer characteristics and behavior, economic and legal
conditions, and stage of PLC-must be taken into account; our study suggests that these elements are significant correlates of standardized pricing programs. Furthermore, because the standardization versus adaptation decision is situation specific, a separate analysis and assessment of the environmental and market conditions that prevail in each targeted foreign market should be performed. Then, appropriate pricing strategies must be developed with respect to each market. At the same time, however, special attention should be paid to the coordination of business operations across different foreign markets and the exploitation of potential scale economies and synergies with the ultimate objective of enhancing the overall company efficiency and effectiveness. The results of the present study substantiate the conclusion drawn in previous empirical research (Cavusgil and Zou 1994) that success in international markets is within the reach of management. Despite the existence of a large and complex set of factors that influence international business activities, managers may be able to enhance the performance of their firms by formulating and implementing marketing programs that match the environmental and market conditions of each foreign market targeted (see Venkatraman and Prescott 1990). It should be remembered that because pricing affects the revenue side of the profitability equation, the ultimate long-term objective of managers in setting international pricing policy centers on revenue maximization. This objective can be achieved through either premium pricing when market conditions are favorable (i.e., demand is strong and competition is weak) or competitive pricing when they are hostile (i.e., demand is weak and competition is intense). Sometimes, however, firms may be forced to adopt uniform pricing across markets as a defensive measure against the graymarket imports of unauthorized intermediaries that are completely out of their control (Cavusgil 1996). Table 3.
Certain limitations evident in the explication of this study should be taken into account. First, the empirical inquiry focused on a specific international market framework (i.e., the United Kingdom), which suggests that the results may suffer from limited external validity. Therefore, readers should exercise caution in attempting to generalize from this investigation, especially if making inferences to other significantly different economic settings such as former Eastern Bloc or newly industrialized regions. Testing the external validity of the present evidence requires an examination of the issues addressed in this study within other international business contexts. Second, the study employed a cross-sectional research design that prevents us from making cause/effect inferences. Future research efforts may consider the use of a longitudinal methodology that, though costly and time consuming, can help track dynamic phenomena such as the relationships of extent of international pricing strategy standardization with its determinants. Third, because of the descriptive nature of the present study, combined with the limited amount of available empirical evidence, a relatively limited number of potential
independent variables have been examined. Further research should investigate the significance and relative importance of other contingency factors. For example, more emphasis should be placed on investigating the influence of various firm characteristics and product- and/or industry-specific factors on the degree of international pricing strategy standardization. Given the absence of pertinent empirical evidence, there is a need for more exploratory research to gain insights into the interrelationships among these variables and how they affect international pricing programs. Fourth, the present study looked only into the content aspect of standardization with reference to pricing. Another relevant aspect could be process standardization, which involves the use of uniform structures and processes for the design, implementation, and control of marketing programs in overseas markets (Jain 1989). Future research efforts could add to the body of existing knowledge by exploring the extent of standardization of the process MNCs follow in formulating their pricing strategies across different foreign markets. Finally, a natural extension of the present study would be to consider performance outcomes of international pricing standardization. The pursuit of a particular international pricing strategy makes sense from a managerial perspective only to the extent to which it has a positive effect on the performance of the firm. Conceptual and empirical studies focusing on the drivers and performance consequences of international marketing pricing standardization would have important implications for both theory development and the advancement of management practice in the field. ACKNOWLEDGMENTS The authors received a Best Paper Award for this article at the 2000 American Marketing Association International Conference, Marketing Strategy for Global Organizations, in Buenos Aires, Argentina. The authors thank the anonymous JIM and conference reviewers for their constructive comments and helpful suggestions. Appendix.
[Reference] View reference page with links REFERENCES
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Craig, C. Samuel and Susan P. Douglas (1996), "Developing Strategies for Global Markets: An Evolutionary Perspective," Columbia Journal of World Business, 31 (Spring), 70-81. Czinkota, Michael R. and Ikko A. Ronkainen (1998), International Marketing. Fort Worth, TX: Dryden Press. Diamantopoulos, A., B.B. Schlegelmilch, and J.P. Du Preez (1995), "Lessons for PanEuropean Marketing? The Role of Consumer Preferences in Fine Tuning the ProductMarket Fit," International Marketing Review, 12 (2), 38-52. Dillman, D.A. (1978), Mail and Telephone Surveys: The Total Design Method. New York: John Wiley & Sons. Douglas, Susan P. and Samuel C. Craig (1986), "Global Marketing Myopia," Journal of Marketing Management, 2 (2), 155-69. and Yoram Wind (1987), "The Myth of Globalization," Columbia Journal of World Business, 22 (Winter), 19-29. Elinder, Erik (1965), "How International Can European Advertising Be?" Journal of Marketing, 29 (April), 7-11.
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[Author Affiliation] Marios Theodosiou and Constantine S. Katsikeas
[Author Affiliation] (c) Journal of International Marketing Vol. 9, No. 3, 2001, pp. 1-18 ISSN 1069-031X
[Author Affiliation] THE AUTHORS
[Author Affiliation] Marios Theodosiou is Lecturer in Marketing, School of Economics Fy Management, University of Cyprus.
[Author Affiliation] Constantine S. Katsikeas is Sir Julian Hodge Chair in Marketing Fr International Business, Cardiff Business School, Cardiff University.
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Country Manager Assignment #3 Guidelines Directions: - Develop a strategic marketing plan for your companys operations Write plan

Available Markets Mexico, Peru, Venezuela

Brazil You currently have 15 SKUs selected, and 2 active ad campaigns.

Production in Brazil: 410 million units

Promote? ARS50.0 Yes

Hypermarket Web/Other Home Wholesale

Allocate promotion based on Total Channel Sales Primary production in Brazil

Allocate promotion based on Last Year's Sales Primary production in Brazil

Chile Decisions SKU MSRP Allow. Sales

Allocate promotion based on Last Year's Sales Primary production in Brazil

CMMARKET ATTRACTIVENESS ASSESSMENT (P. 2)

What Youll Need

Deliverables (what to include in word document, i.e., answers):

Available Markets Mexico, Peru, Venezuela

Brazil You currently have 15 SKUs selected, and 2 active ad campaigns.

Available Markets Mexico, Peru, Venezuela

ACTUAL MARKETING PLAN (HANDED IN)

Available Markets Mexico, Peru, Venezuela

Brazil You currently have 15 SKUs selected, and 2 active ad campaigns.

Available Markets Mexico, Peru, Venezuela

Brazil You currently have 15 SKUs selected, and 2 active ad campaigns.

Available Markets Mexico, Peru, Venezuela

Brazil You currently have 15 SKUs selected, and 2 active ad campaigns.

Available Markets Mexico, Peru, Venezuela

Brazil You currently have 15 SKUs selected, and 2 active ad campaigns.

12) TARGET MARKETS

[Reference] View reference page with links REFERENCES

[Author Affiliation] Marios Theodosiou and Constantine S. Katsikeas

[Author Affiliation] THE AUTHORS

[Author Affiliation] Matthew B. Myers

[Author Affiliation] University of Oklahoma, Norman, Oklahoma, USA S. Tamer Cavusgil

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3559 http://proquest.umi.com.proxy.consortiumlibrary.org/pqdweb?did=134132 4871&sid=29&Fmt=3&clientId=23364&RQT=309&VName=PQD

[Reference] View reference page with links REFERENCES

[Author Affiliation] Marios Theodosiou and Constantine S. Katsikeas

[Author Affiliation] THE AUTHORS

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