Here is a compilation of questions and answers on ‘International Marketing’ for management students.
1. What do You Mean by International Pricing?
Pricing is a very critical decision in international marketing because it is a major factor influencing a firm’s total revenue from International Marketing and its profitability. There is no scientific and mathematical formula or a hard and fast rule that can be applied in pricing a product correctly.
No doubt, as in the domestic market, the interaction of market forces, like demand and supply, affect the price at which the product can be sold in the international market. Besides, several other factors such as economic, social, political environment of the country and product attributes influence the decision, especially in international marketing.
Proper price of a product is one of the deciding factors in success of a business enterprise. It is not true that low price is the correct price. In fact, proper price depends on marketing mix, demand in market and competition. Price of a product should be properly related to other factors of market mix like product, its promotion, place of distribution and it should encourage demand. Such a price may be termed as a right price.
In any given marketing, three basic factors determine the limits of pricing decisions of a firm. These are the product costs, the purchasing power of the consumers, and demand and supply force. The costs of the product serve as the floor price below which the exporter shall not agree, in most of the cases, to sell the product. The purchasing power of the consumer fixes the upper limit of the price which the firm can charge.
In reality, the prices are rarely fixed in the market by these two factors. Actually, they are fixed by the demand and supply forces in the market at a given point of time. The international marketer’s task is compounded by the fact that not only he has to consider the above three factors but has to continue with other Government pressures like taxes and tariffs, dumping regulations, price ceiling, foreign exchange regulations and rate of inflation in different foreign markets. This makes his task difficult. It is, therefore, necessary to adopt differentiated pricing strategy in different foreign markets.
Besides above, the management’s pricing policy should conform to the basic objectives of the firm. If the firm’s policy is to maximise profits, the pricing would be decided accordingly. The objectives of an industrial concern may be different from those of the trading firms. In such an event, the pricing policy may be clearly defined.
The nature of the product, i.e., whether standardised or not, also plays an important role in fixing the price policy. If the product is a standardised product, the international marketer plays little role in determining the price. In such cases, the market demand and supply position determines it. But where the product is not standardised or it can be differentiated from each other, the marketer has a very important role in price determination.
Cost to an exporter is an important factor in international pricing. As in internal marketing, in international marketing also, cost of a product, its demand and supply and competition are considered while fixing its price. Depending on cost and supply, an exporter fixes its minimum price. While fixing its maximum price demand and supply are of importance. Compared to fixing internal price, it is more complex to determine its international price.
While doing it one should take into account prevalent modes in a foreign market as well as laws of that country. Cost of special packing and labelling for safely of goods must be considered. Cost of transportation and warehousing, insurance premium for safety of goods in transit should also not to be overlooked and while fixing price, export promotion expenses also have to be considered.
2. Name Some Export Promotions Schemes?
Various promotional schemes have been introduced from time to time to boost exports.
Details of a few of them are as under:
(i) Served from India Scheme:
Recognising the key role of the service sector in the economy, the foreign trade policy has unveiled the ‘Served from India’ scheme to accelerate growth in service exports. The scheme aims at creating a brand instantly recognised and respected world over. The earlier scheme has been revamped and recast into the new scheme. Individual service providers who earn foreign exchange of at least Rs 5 lakh, and other service providers with forex earnings of at least Rs 10 lakh, will be eligible for a duty credit entitlement of 10 per cent of total forex earned by them.
In the case of stand-alone restaurants, the entitlement shall be 20%, whereas in the case of hotels, it shall be 5 per cent. Hotels and restaurants can use their duty credit entitlement for import of food items and alcoholic beverages.
(ii) Krishi Upaj and Gram Udyog Yojana:
Another new scheme called Vishesh Krishi Upaj Yojana (Special Agricultural Produce Scheme) has been introduced to boost exports of fruits, vegetables, flowers, minor forest produce and their value added products. In 2006-2007 trade policy scheme has been renamed as ‘Krishi Upaj and Gram Udyog Yojana and goods from rural and cottage industries have been included within the renamed scheme.
Export of these products shall qualify for duty free credit entitlement equivalent of 5% of F.O.B. (Free On Board) value of exports. The entitlement is freely transferable and can be used for import of a variety of inputs and goods.
(iii) Target Plus:
A new scheme to accelerate growth of exports called Target Plus has been introduced. Under this scheme, exporters who achieve quantum growth would be entitled to duty-free credit based on incremental exports substantially higher than the general annual export target. For incremental growth of over 20, 25 and 100 per cent, the duty-free credit would be five, 10 and 15 per cent, respectively, of FOB (free on board) value. The government has fixed a growth target of 16 per cent.
(iv) Niryat Bandhu Scheme:
In Annual Supplement of Foreign Trade Policy 2009-14, it has been decided to launch a new scheme for mentoring first generation entrepreneurs who are interested in international business. The officer (Niryat Bandu) would function in the mentoring arena for the young Turks in international business enterprise.
In new policy as part of tariff measures the incidence of un-rebated service tax and Fringe Benefit Tax (FBT) on exports will be factored in the various duty neutralisation and remission schemes. The Advance Licensing Scheme (which allows imports of inputs before exports) and Duty Free Replenishment Certificate (which allows transfer of import entitlements) have been clubbed to form a new scheme called “Duty Free Import Authorisation Scheme” which offers the facility to import the required inputs before exports and allows the transfer of scrip once the export obligation is complete.
Under Export Promotions Capital Goods Scheme (EPCG) facility has been added whereby export obligation period is extended up to two years, subject to the payment of requisite composition fees or enhancement of export obligation. Further, extension of two years is permitted on payment of 50 per cent of duty proportionate to unfulfilled export obligation.
Exports in rupee terms have shown on increasing trend and diversification of its base over the years. While there are year to year variations the commodities whose exports have been increasing over the last few years and also in 2005-06 include agriculture and allied products, ores and minerals, gems, jewellery, chemical and allied products, engineering products and petroleum products.
3. Define Direct Mail Advertising in International Marketing? What are its Types, Advantages and Limitations?
Direct mail advertising means the form of advertising in which the advertiser sends personal message in writing through post to some selected persons. As this method approaches persons directly, it is also called ‘Direct Advertising’. This is also called ‘Advertising through Letter Box.’
The foremost job in such a kind of advertising is the preparation of a mailing list. Such a list should include only those who are able and likely to respond to the advertisement. The list can be prepared from various sources such as, list of present and past customers, list prepared by salesmen, list compiled from directories such as telephone directory, voters’ list, etc.
According to Richard Messner, “Direct Mail advertising is a vehicle for transmitting a publicist’s message in permanent, written or processed form with controlled distribution direct to selected individuals.”
According to J. W.W. Cassels, “Direct Mail advertising is using the letter box to tell the right people about the right goods at the right time in the right way.”
According to Nystrom, “Direct mail advertising means dispatching advertisement materials to potential customers by post.”
According to Mason and Rath, “Every type of mail which is being sent to by an advertiser to potential customers is known as Direct mail.”
Types of Direct Mail Advertising Literature:
Various forms of Direct Mail advertising are as under:
A circular has same subject matter related to special prize scheme, information of new prices, information of any change in the policies etc.
ii. Business Reply Card:
In it, two cards of postcards size are used. One card is for advertiser to inform person and other for customer to place an order.
Catalogues are sent to teachers, professors, booksellers and libraries etc. These are widely used by publishers.
iv. Novelty Gift:
Gifts like diary, pens, calendars etc. are called novelty gifts and these are sent to customers by producer.
v. Price List:
Producer informs customers about new prices and contains the price list of products.
vi. Personal Letters:
Businessmen post written letters to their friends, relatives and customers informing about products.
Book of a small size contains details of a particular product. It is sent to some customers by producer.
Big companies publish their own magazines at regular interval. These magazines contain every information about the firms and the goods produced by the companies.
Advantages of Direct Mail:
Two distinctive features of direct mailing method are that the system is selective and that it is personal. It is selective because the approaches are made directly to only those who have been identified as the target audience. It is personal because the letter and other publicity materials are mailed either by name or by designation of the identified receiver.
In direct mailing, the letter and other printed materials are to be designed in a way so as to give a personal touch. The receiver must feel that it is not a routine letter but something different and personal and, therefore, should be glanced at. It must also be attractive to invite attention.
Generally direct mailing is less costly than conventional methods of advertisement. But here, too, the real cost per unit will have to be considered. Direct cost to each shot of mailing is the cost of the letter, envelope and the postage. The lump-sum cost, if any, will be the cost of producing the publicity materials attached to the letter and the cost of preparing the mailing list. The total of these expenditures divided by the number of letters issued is the average fixed cost per shot.
Even taking into account the real cost per response, it is found that for many exporting firms in developing countries which are trying to get importers interested in their products, direct mailing system is the most cost effective, provided sufficient care has been taken to design the advertising literature, brochures, catalogues, etc. This method can be a very significant medium for sales promotion.
The advantages of direct mail can be summarised as under:
(i) Press advertising is meant for large masses whereas direct mail is intended for the addressee only. In fact this is the only method of advertising which establishes direct relations.
(ii) The advertising could reach any part of the country.
(iii) The messages that cannot be given through advertising could be managed by direct mail.
(iv) Direct Mail advertising saves the time and energy of both the advertiser and customers.
(v) Direct Mail advertising helps in making the customers permanent because the correspondence between advertiser and customers goes on continuously.
(vi) It provides very wide scope for advertisement. The fact is that it has the widest scope because the letter box may communicate the message of advertiser at all the places throughout the world.
(vii) The advertiser may maintain secrecy also in direct mail advertising because it is a personal correspondence between the advertiser and his customers.
(viii) Direct Mail advertising provides the opportunity to the advertiser to communicate as much detail as he wants.
Limitations of Direct Mail Advertising:
(i) It is not cheap, as postal charges are high. Practically, it is the costliest method of advertising.
(ii) The preparation of a proper mailing list is not an easy job.
(iii) Even the list prepared with utmost care would become obsolete in a short time.
(iv) It has not proved its supremacy in all fields.
(v) It has proved to be ineffective in case of products which need personal examination.
(vi) This form of advertising cannot be adopted when the consumers are illiterate.
Main Considerations for Preparation of Mail Advertising Literature:
Following points are to be considered while preparing Mail Advertising literature:
(i) The language should be simple so that everyone can understand it without any difficulty.
(ii) The literature’s get up should be attractive. Different colours as well as diagrams can be used to make them more attractive.
(iii) Size of the advertising literature should be proper so that the same can be put into pockets if the person feels so.
(iv) The advertising literature should be prepared in such a way that the consumer should realise that the product is good. There should be arrangement for samples to be sent to the consumers. Moreover, if the consumers do not like the goods, they must be assured that the goods will be taken back.
(v) There must be sufficient information regarding the product in the advertising literature so that the consumer is not inclined to enquire about the product.
(vi) The printing of the advertising literature should be fine and attractive. Quality paper must be used for printing.
4. What is Product Standardisation? What are the Advantages and Disadvantages?
According to Lipson and Darling, “Standardisation is the process of establishing particular physical attributes and chemical composition against other items.” This principle stresses that the product should be standardised. The standards should be determined in advance. These standards may relate to the size, colour, form, packing, physical and chemical attributes etc.
In India, Bureau of Indian Standards has established certain standards. The use of standards, excepting a few products, is optional. A company desiring to conform to standards has to obtain a licence, and such firm can use TSI’ mark on their products.
Activities Involve in Standardisation:
(i) To determine the standard of the products.
(ii) To inspect the products on the basis of predetermined standards.
Advantages of Product Standardisation:
i. Increase in Sales:
Product standardisation increases the sale of the enterprise. As the form, size, quality and utility of the product are uniform, the customers rely upon the products.
ii. Easy Marketing:
Marketing of standard goods becomes very easy. It is also very easy to advertise these products. Consumers easily identify these products and rely upon these products.
iii. Increase in Goodwill:
Product standardisation also increases the goodwill of the enterprise. It also helps in getting brand loyalty from the customers.
iv. Less Selling Risk:
As the standards of products are determined keeping in view the habits, tastes, nature and attitudes of consumers, the risk in selling standard goods is reduced to minimum.
v. Large-Scale Production Economies:
Standard goods are produced at large- scale. Large-scale production results in many types of saving in the field of production, distribution, advertising and sales promotion. Due to these economies, the producer is in a position to produce maximum goods of best quality at minimum cost.
The aforesaid benefits of standardisation are very important in product planning.
But it also has some shortcomings which are as follows:
i. Technical Factors:
There are some technical factors which are a barrier in the use of standardisation, e.g., to be able to sell its goods in some foreign countries, it is necessary for a company to make products that run on 110V instead of 220V.
ii. Legal Factors:
Legal factors are also a barrier in standardisation. Companies have to follow the legal systems of other countries in order to work in the international market.
iii. Buyer’s Will:
Standardisation does not work in those markets where the buyer’s will is the most important factor.
iv. Resource Environment:
The geographical conditions are different in every country. Standardisation is affected by this as well, e.g., it is not necessary that a product that works well in a tropical country like Brazil, will work well in a cold country like Russia.
v. Other Factors:
Some other factors influence standardisation as well. These are industrial progress, competitive environment, product life cycle etc.
Thus, there are various factors which influence our decision to use or not to use standardisation.
Standardisation started in India after the Second World War. The govt., set up the Indian Standards Institution in 1947. Although the govt., has made the following of these orders optional but any company which becomes a member of this Institution has to follow the standards.
To hasten the standardisation process internationally the International Organisation for Standardisation, I.S.O. and the International Electronic Commission have been set up. In Japan standardisation is done by Japanese Standards Institute.
The government set up a committee under Sh. P. Gopalakrishnan to encourage the standardisation process. This committee gave recommendations after studying the markets.
The points of recommendation are as follows:
i. Standardisation is necessary. More awareness should be created about it in all fields.
ii. The latest information on standardisation should be released.
iii. The results obtained after imposing standardisation should be published.
iv. Foreign standards should be made available.
v. Guidance should be given about import substitution.
vi. Use of standards should be made compulsory.
vii. The establishment of standardisation in big organisations like railways, posts, security etc. should be made compulsory.