Study Guide and Extra Material

Pricing Factors for Goods That Cross Borders

1. Does the price reflect the product's quality? 2. Is the price competitive given local market conditions? 3. Should the firm pursue market penetration, market skimming, or some other pricing objective? 4. What type of discount (trade, cash, quantity) and allowance (advertising, trade-off) should the firm offer its international customers? 5. Should prices differ with market segment? 6. What pricing options are available if the firm's costs increase or decrease? Is demand in the international market elastic or inelastic? 7. Are the firm's prices likely to be viewed by the host-country government as reasonable or exploitative? 8. Do the foreign country's dumping laws pose a problem?

Global Pricing: Three Policy Alternatives

1. Extension or Ethnocentric 2. Adaptation or Polycentric 3. Geocentric

Working with Channel Intermediaries

1. Select distributors - don't let them select you 2. Look for distributors capable of developing markets, rather than those with a few good customer contacts 3. Treat local distributors as long-term partners, not temporary market-entry vehicles 4. Support market entry by committing money, managers, and proven marketing ideas 5. From the start, maintain control over marketing strategy 6. Make sure distributors provide you with detailed market and financial performance data 7. Build links among national distributors at the earliest opportunity

Which of the following transportation modes ranks lowest in capability?

Air

Law of One Price

All customers in the market get the best product for the best price

Distribution Channels: Terminology and Structure

Distribution is the physical flow of goods through channels Channels are made up of a coordinated group of individuals or firms that perform functions that add utility to a product or service

Distribution Channels: Terminology and Structure

Distributor - wholesale intermediary that typically carries product lines or brands on a selective basis • Agent - an intermediary who negotiates transactions between two or more parties but does not take title to the goods being purchased or sold

Trains are more reliable than trucks for transportation of goods.(T/F)

False

Some wine importers insist on shipping their wines in refrigerated containers to protect the wines from being damaged by high temperatures. Such importers are creating which kind of utility?

Form Utility

Inflationary Environment

In Brazil, where the inflation rate was as high as 2,000 percent during the late 1980s, retailers sometimes changed prices several times each day. Shelf pricing, rather than individual unit pricing, became the norm throughout the retailing sector nearly 15 years before Wal-Mart arrived in the region. Because their warehouses contained goods that had been bought at different prices, local retailers were forced to invest in sophisticated computer and communications systems to help them keep pace with the volatile financial environment. They utilized sophisticated inventory management software to help them maintain financial control. When Wal-Mart came to Brazil in the mid-1990s, it discovered that local competitors had the technological infrastructure that allowed them to match its aggressive pricing policies.

Export Price Escalation

the increase in the final selling price of goods traded across borders.

Gray Market Issues

-Dilution of exclusivity -Free riding -Damage to channel relationships -Undermining segmented pricing schemes -Reputation and legal liability

Extension Pricing

-Ethnocentric -Per-unit price of an item is the same no matter where in the world the buyer is located -Importer must absorb freight and import duties -Fails to respond to each national market

Using Sourcing as a Strategic Pricing Tool

-Marketers of domestically manufactured finished products may move to offshore sourcing of certain components to keep costs down and prices competitive -China is "the world's workshop" -Rationalize the distribution system—Toys 'R' Us bypasses layers of intermediaries in Japan to operate U.S. style warehouse stores

Penetration Pricing

A first-time exporter is unlikely to use penetration pricing. The reason is simple: Penetration pricing often means that the product may be sold at a loss for a certain length of time. Many companies, especially those in the food industry, launch new products that are not innovative enough to qualify for patent protection. When this occurs, penetration pricing is recommended as a means of achieving market saturation before competitors copy the product. Historically many companies that used this type of pricing were located in the Pacific Rim. Scale-efficient plants and low-cost labor allowed these companies to blitz the market.

Transfer Pricing

A market-based transfer price is derived from the price required to be competitive in the global marketplace. In other words, it represents an approximation of an arm'slength transaction. Cost-based transfer pricing uses an internal cost as the starting point in determining price. Cost-based transfer pricing can take the same forms as the cost-based pricing methods discussed earlier in the chapter. The way costs are defined may have an impact on tariffs and duties of sales to affiliates and subsidiaries by global companies. A third alternative is to allow the organization's affiliates to determine negotiated transfer prices among themselves. This method may be employed when market prices are subject to frequent changes

Global markets

Are made up of customers from across the world. Diamonds - Crude oil - Commercial aircraft - Integrated circuits

Undermining segmented pricing schemes

As noted earlier, gray markets can emerge because of price differentials that result from multinational pricing policies. However, a variety of forces—including falling trade barriers, the information explosion on the Internet, and modern distribution capabilities —hamper a company's ability to pursue local pricing strategies.

Dilution of exclusivity

Authorized dealers are no longer the sole distributors. The product is often available from multiple sources and margins are threatened.

The direct exchange of goods or services between parties in lieu of monetary payment is known as:

Barter

Companion Products or "Razors and Blades" Pricing

Cellular service providers like Vodaphone and AT&T buy handsets from Nokia, Motorola, etc. and subsidize the cost by locking customers into longterm contracts and charging extra for text messaging, roaming, etc. In the US the iPhone sells for $199. However, in India, where customers do not want to be locked in to long-term contracts, the iPhone sells for $600 and is sold exclusively through Airtel, an Indian operator, and Vodaphone. Sales have been slow as consumers choose lower priced phones from competitors. And, a significant number of $199 iPhones are returning from the U.S. in tourist luggage

Cost-Plus Pricing

Companies using rigid cost-plus pricing set prices without regard to the eight considerations listed previously. They make no adjustments to reflect market conditions outside the home country. The obvious advantage of rigid cost-based pricing is its simplicity: Assuming that both internal and external cost figures are readily available, it is relatively easy to arrive at a quote. • The disadvantage is that this approach ignores demand and competitive conditions in target markets; the risk is that prices will be set either too high or too low. An alternative method, flexible cost-plus pricing, is used to ensure that prices are competitive in the context of the particular market environment. Experienced exporters realize that the rigid cost-plus approach can result in severe price escalation, with the unintended result that exports are priced at levels above what customers are willing or able to pay. • Managers who utilize flexible cost-plus pricing are acknowledging the importance of the eight criteria listed earlier. Flexible cost-plus pricing sometimes incorporates the estimated future cost method to establish the future cost for all component elements.

Damage to channel relationships

Competition from gray market products can lead to channel conflict as authorized distributors attempt to cut costs, complain to manufacturers, and file lawsuits against the gray marketers.

Retailing in Developing Countries

Consumers purchase food, soft drinks and other items at "Mom & Pop" stores, kiosks, and market stalls in single use packages • 70% of Mexicans shop at these stores • P&G aids stores that carry at least 40 P&G products with displays, promo materials

Generally speaking, a company has little control over media. To compensate for this lack of control, many companies utilize:

Corporate Advertising

Nike came under fire from critics who alleged poor working conditions in the factories that make the company's athletic shoes. This is an example of the demand for:

Corporate Social Responsibility

Cost-Based Pricing

Cost-based pricing is based on an analysis of internal and external cost • Firms using western cost accounting principles use the Full absorption cost method - Per-unit product costs are the sum of all past or current direct and indirect manufacturing and overhead costs - Must include additional costs & expense when goods cross national boarders

Countertrade

Countertrade occurs when payment is made in some form other than money • Options - Barter - Counterpurchase or parallel trading - Offset - Compensation trading or buyback - Switch trading

The practice of registering a particular domain name for the express purpose of reselling it to the company that should rightfully use it is called:

Cybersquatting

Inflationary Environment

Defined as a persistent upward change in price levels - Can be caused by an increase in the money supply - Can be caused by currency devaluation • Essential requirement for pricing is the maintenance of operating margins

Types of Retailers

Department stores have a product mix under one roof • Expansion outside of the home market is usually limited to a few countries • Two views: • "It's quite difficult to transfer a department store brand abroad. You have to find a city with the right demographic for your offer. If you adapt your offer to the locality, you dilute your brand name." Maureen Hinton, London Retail Analyst • "Conceptually, department stores are global brands already because we live in a world with an enormous amount of travel between cities and continents." Marvin Traub, former CEO, Bloomigdales

The Target-Costing Process

Determine the segment(s) to be targeted, as well as the prices that customers in the segment will be willing to pay. • Compute overall target costs with the aim of ensuring the company's future profitability. • Allocate the target costs to the product's various functions. Calculate the gap between the target cost and the estimated actual production cost. • Obey the cardinal rule: If the design team can't meet the targets, the product should not be launched.

Establishing Channels

Direct involvement - the company establishes its own sales force or operates its own retail stores Indirect involvement - the company utilizes independent agents, distributors, and/or wholesalers • Channel strategy must fit the company's competitive position and marketing objectives within each national market

Peer-to-peer (p-to-p) marketing uses distribution channels through:

Electronic Commerce

If company managers decide to set the export price for a particular product at an amount equivalent to the home-country price, they would be using which approach to pricing?

Ethnocentric

Reputation and legal liability

Even though gray market goods carry the same trademarks as goods sold through authorized channels, they may differ in quality, ingredients, or some other way. Gray market products can compromise a manufacturer's reputation and dilute brand equity, as when prescription drugs are sold past their expiration dates or electronics equipment is sold in markets where they are not approved for use or where manufacturers do not honor warranties.

Because the Internet is global, no single country controls it.(T/F)

FALSE

Publicity is similar to advertising in that companies pay the media for placement of stories and news items.(T/F)

FALSE

Incoterms

FCA (free carrier) sale occurs when goods are delivered to the carrier • FAS (free alongside ship) named port of destination - seller places goods alongside the vessel or other mode of transport and pays all charges up to that point • FOB (free on board) - seller's responsibility does not end until goods have actually been placed aboard ship • CIF (cost, insurance, freight) named port of destination - risk of loss or damage of goods is transferred to buyer once goods have passed the ship's rail • CFR (cost and freight) - seller is not responsible at any point outside of factory

If the terms of the sale are CFR (cost and freight), the seller is responsible for risk or loss at any point outside the factory.(T/F)

False

Price Fixing

For example, in 2011 the European Commission determined that Procter & Gamble, Unilever, and Henkel had conspired to set prices for laundry detergent. The term horizontal applies in this instance because Procter & Gamble and its co-conspirators are all at the same supply chain "level" (i.e., they are manufacturers). The European Commission recently fined Nintendo nearly $150 million after it was determined that the video game company had colluded with European distributors to fix prices. During the 1990s, prices of Nintendo video game consoles varied widely across Europe. They were much more expensive in Spain than in Britain and other countries; however, distributors in countries with lower retail prices agreed not to sell to retailers in countries with high prices.

Adaptation or Polycentric Pricing

IKEA takes a polycentric approach to pricing: While it is company policy to have the lowest price on comparable products in every market, managers in each country set their own prices, which depend in part on local factors such as competition, wages, taxes, and advertising rates. Overall, IKEA's prices are lowest in the United States, where the company competes with large retailers. Prices are higher in Italy where local competitors tend to be smaller, more upscale furniture stores than those in the U.S. market. Generally, prices are higher in countries where the IKEA brand is strongest. When IKEA opened its first stores in China, the young professional couples, the primary target market, thought prices were too high. The company quickly increased the amount of Chinese products in order to lower prices; today the average Chinese customer spends 300 yen, or about $36

Free riding

If the manufacturer ignores complaints from authorized channel members, those members may engage in free riding. That is, they may opt to take various actions to offset downward pressure on margins. These options include cutting back on presale service, customer education, and salesperson training.

________ is a form of paid television programming in which a particular product is demonstrated, explained, and offered for sale to viewers who call a toll-free number shown on the screen.

Infomercials

Geocentric Pricing

Intermediate course of action • Recognizes that several factors are relevant to pricing decision - Local costs - Income levels - Competition - Local marketing strategy

Global Pricing Objectives and Strategies

Managers must determine the objectives for the pricing objectives - Unit Sales - Market Share - Return on investment • They must then develop strategies to achieve those objectives - Penetration Pricing - Market Skimming

Consumer Channels

Manufacturer-owned stores - Walt Disney opening 600 new stores globally - Nike, Levi Strauss, Apple • Independent franchise • Independent retailers - Wal-Mart • Flagship retail stores for Apple, Sony, wellknown fashion houses, Nokia, Nike to build brand loyalty, showcase products, and help gather marketing intelligence

Market Skimming and Financial Objectives

Market Skimming - Charging a premium price - May occur at the introduction stage of product life cycle - Luxury goods marketers use price to differentiate products • LVMH, Mercedes-Benz • This strategy has been used consistently in the consumer electronics industry

Channel Objectives & Utility

Marketing channels exist to create utility for customers - Place utility - availability of a product or service in a location that is convenient to a potential customer - Time utility - availability of a product or service when desired by a customer - Form utility - availability of the product processed, prepared, in proper condition and/or ready to use - Information utility - availability of answers to questions and general communication about useful product features and benefits

Which form of organization design is capable of integrating geographic knowledge, product knowledge, functional competencies, and customer knowledge?

Matrix Structure

Door-to-Door Selling

Mature form in the U.S. • Growing popularity in China—AIG insurance, Mary Kay, Tupperware, Avon, Amway • Amway sales tripled in China, 1998-2004 to $2 billion, Co.'s biggest market • ½ of cars are sold door-to-door in Japan with 100,000 salespeople

Crossing International Borders

Obtain export license if required Obtain currency permit Pack goods for export Transport goods to place of departure Prepare a land bill of lading Complete necessary customs export papers Prepare customs or consular invoices Arrange for ocean freight and preparation Obtain marine insurance and certificate of the policy

Penetration Pricing and Non-Financial Objectives

Penetration Pricing - Charging a low price in order to penetrate market quickly - Appropriate to saturate market prior to imitation by competitors - Packaged food product makers, with products that do not merit patents, may use this strategy to get market saturation before competitors copy the product

Adaptation or Polycentric Pricing

Permits affiliate managers or independent distributors to establish price as they feel is most desirable in their circumstances • Sensitive to market conditions but creates potential for gray marketing

Transfer Pricing

Pricing of goods, services, and intangible property bought and sold by operating units or divisions of a company doing business with an affiliate in another jurisdiction • Intra-corporate exchanges - Cost-based transfer pricing - Market-based transfer pricing - Negotiated transfer pricing

Facebook, Google, Pinterest, Twitter, and Wikipedia represent which element of the marketing mix?

Product

Companion Products or "Razors and Blades" Pricing

Products whose sale is dependent upon the sale of primary product - Video games are dependent upon the sale of the game console • "If you make money on the blades, you can give away the razors." • Cellular service providers subsidize the phone and make money on calling plans

Advertising, public relations, and other forms of communication are critical tools in the marketing program and reflect the ________ (P) of the marketing mix.

Promotion

Target Costing

Rather than create an item and then assign a price to it—the traditional cost-plus approach— the company first estimates what consumers in emerging markets can afford to pay. From there, product attributes and manufacturing processes are adjusted to meet various pricing targets. For example, to hold down the cost of its Ace Natural detergent, which is used to hand-wash clothes in Mexico, P&G reduced the product's enzyme content. The result: a product that costs a peso less than a single-use packet of regular Ace. Plus, the reformulated product is gentler on the skin.

Price Fixing

Representatives of two or more companies secretly set similar prices for their products - Illegal act because it is anticompetitive • Horizontal price fixing occurs when competitors within an industry that make and market the same product conspire to keep prices high • Vertical price fixing occurs when a manufacturer conspires with wholesalers/retailers to ensure certain retail prices are maintained

Dumping

Sale of an imported product at a price lower than that normally charged in a domestic market or country of origin • Occurs when imports sold in the U.S. market are priced at either levels that represent less than the cost of production plus an 8% profit margin or at levels below those prevailing in the producing countries • U.S. law, the Byrd Amendment, provides for payment to companies harmed by dumping • To prove, both price discrimination and injury must be shown

Which promotional technique is best suited to a situation in which a company wants consumers to actually try its product or service at no cost?

Sampling

Types of Retailers

Specialty Retailers • Less variety than department stores • Offer merchandise depth & high levels of service - The Body Shop, Victoria's Secret. Starbucks Supermarkets • Between 50,000 & 60,000 sq. ft. • Grocers haven't spread outside the US b/c market size is vast • UK Tesco is global Convenience stores • High-turnover convenience & impulse goods • Prices 15-20% higher than grocery stores • 7-11 world's largest - 26,000 locations • Trend towards locating in malls, airports, office buildings, and college & universities

"Convergence" is a term that describes a world in which the telecommunications, consumer electronics, computer, and entertainment industries are entering each other's markets.(T/F)

TRUE

The ability to speak at least one other foreign language is one difference between managers born and raised in the United States and those born and raised elsewhere.(T/F)

TRUE

Basic Pricing Concepts

The Global Manager must develop systems and policies that address Price Floor: minimum price - Price Ceiling: maximum price - Optimum Prices: function of demand Must be consistent with global opportunities and constraints Be aware of price transparency created by Euro zone, Internet

Peer-to-Peer Marketing

The Internet and other related media are dramatically altering distribution • Interactive TV may become a viable direct marketing channel in the future • eBay pioneered P2P - Helped Disney and IBM set up auction sites for B2C auctions • Interactive TV is coming when homes are wired for 2-way

Extension Pricing

The extension approach has the advantage of extreme simplicity because no information on competitive or market conditions is required for implementation. The disadvantage of the ethnocentric approach is that it does not respond to the competitive and market conditions of each national market and, therefore, does not maximize the company's profits in each national market or globally. • When toymaker Mattel adapted U.S. products for overseas markets, for example, little consideration was given to price levels that resulted when U.S. prices were converted to local currency prices. As a result, Holiday Barbie and some other toys were overpriced in global markets.

Government Controls, Subsidies, and Regulations

The types of policies and regulations that affect pricing decisions are: -Dumping legislation -Resale price maintenance legislation -Price ceilings -General reviews of price levels Foreign governments may: -require funds to be noninterest-bearing accounts for a long time -restrict profits taken out of the country and limit funds paid for imported material -Restrict price competition

Compensation trading

This form of countertrade, also called buyback, involves two separate and parallel contracts. In one contract, the supplier agrees to build a plant or provide plant equipment, patents or licenses, or technical, managerial, or distribution expertise for a hard currency down payment at the time of delivery. In the other contract, the supplier company agrees to take payment in the form of the plant's output equal to its investment (minus interest) for a period of as many as 20 years. Used heavily in China.

Gray Market Goods

This practice, known as parallel importing, occurs when companies employ a polycentric, multinational pricing policy that calls for setting different prices in different country markets. • Gray markets can flourish when a product is in short supply, when producers employ skimming strategies in certain markets, or when the goods are subject to substantial markups. • For example, in the European pharmaceuticals market, prices vary widely. In the United Kingdom and the Netherlands, for example, parallel imports account for as much as 10 percent of the sales of some pharmaceutical brands. The Internet is emerging as a powerful new tool that allows would-be gray marketers to access pricing information and reach customers. Suppose that a golf equipment manufacturer sells a golf club to its domestic distributors for $200; it sells the same club to its Thailand distributor for $100. The lower price may be due to differences in overseas demand or ability to pay. Or, the price difference may reflect the need to compensate the foreign distributor for advertising and marketing the club. The golf club, however, never makes it to Thailand. Instead, the Thailand distributor resells the club to a gray marketer in the United States for $150. The gray marketer can then undercut the prices charged by domestic distributors who paid $200 for the club. The manufacturer is forced to lower the domestic price or risk losing sales to gray marketers, driving down the manufacturer's profit margins. Additionally, gray marketers make liberal use of manufacturers' trademarks and often fail to provide warranties and other services that consumers expect from the manufacturer and its authorized distributors

Target Costing

Toyota, Sony, Olympus, and Komatsu are some of the well-known Japanese companies that use target costing. The target costing approach can be used with inexpensive consumer nondurables. For example, in Mexico and other emerging markets, Procter & Gamble (P&G) managers know that workers are often paid a daily wage and that its Mexican customers generally carry 5- and 10-peso coins. To keep prices of shampoo and detergent below, say, 11 or 12 pesos and still ensure satisfactory profit margins, P&G uses target costing (P&G calls it "reverse engineering").

The "extension versus adaptation" debate is essentially a debate over "standardized versus localized" advertising. (T/F)

True

National markets

When businesses sell to a wide geographical area - Costs - Competition - Regulation

Organic growth occurs when

a company uses its own resources to open a store on a greenfield site or to acquire one or more existing retail facilities from another company. In 1997, for example, Marks & Spencer announced plans to expand from one store to four in Germany via the purchase of three stores operated by Cramer and Meerman. When Richard Branson set up the first Virgin Megastore in Paris, he did so by investing millions of pounds in a spectacular retail space on the Champs-Elysées. From the perspective of M&S and Virgin, the retail environments of Germany and France are both culturally close and easy to enter. Of course, the success of this strategy hinges on the availability of company resources to sustain the high cost of the initial investment.

Countertrade usually involves

a seller from the West and a buyer in a developing country. Flourishes when hard currency is scarce. Exchange controls may prohibit a company from repatriating earnings so the company spends in country to buy products that are exported. The most important reason for countertrade is that developing countries have found it difficult to obtain bank financing for exports

Counterpurchase is distinguished

from other forms in that each delivery in an exchange is paid for in cash. For example, Rockwell International sold a printing press to Zimbabwe for $8 million. The deal went through, however, only after Rockwell agreed to purchase $8 million in ferrochrome and nickel from Zimbabwe, which it subsequently sold on the world market.

As a company's initial international business involvement becomes too much for a single manager or export department to handle, the next step is typically to establish a(n):

international division structure.

Switch trading

is a mechanism that can be applied to barter or countertrade. In this arrangement, a third party steps into a simple barter or other countertrade arrangement when one of the parties is not willing to accept all the goods received in a transaction.

A marketer of fine French cognac offers fancy cigar ashtrays as prizes to consumers who correctly solve a crossword puzzle. Which of the following most accurately describes this offer?

non-price promotion

A market ________ pricing strategy calls for setting price levels that are low enough to quickly build market share.

penetration

A manufacturer attempting to set prices for its products in export markets must realize that CIF, VAT, and distributor markup all lead to:

price escalation

In fall 2002, a new Broadway production of Puccini's La Boheme was set in Paris circa 1957. The stage set included billboards for luxury pen maker Montblanc and Piper-Heidsieck champagne. This is an example of:

product placement.

Offset is a...

reciprocal arrangement whereby the government in the importing country seeks to recover large sums of hard currency spent on expensive purchases such as military aircraft or telecommunications systems. Lockheed Martin Corp. sold F-16 fighters to the United Arab Emirates for $6.4 billion and agreed to invest $160 million in the petroleum-related UAE Offsets Group.

The key to a successful franchise operation is

the ability to transfer company know-how to new markets. Benetton, IKEA, and other focused, private-label retailers often use franchising as a market-entry strategy in combination with wholly owned stores that represent organic growth. IKEA has more than 100 company-owned stores across Europe and the United States; its stores in the Middle East and Hong Kong are franchise operations.

Global Retailing

• Department stores • Specialty retailers • Supermarkets • Convenience stores • Discount stores and warehouse clubs • Hypermarkets • Supercenters • Category killers • Outlet stores European retailers spread to colonies in the 19th, early 20th centuries • Global retailers serve developing nations with more products & better prices • Organized retail refers to modern, branded chain stores

Gray Market Issues

• Dilution of exclusivity • Free riding • Damage to channel relationships • Undermining segmented pricing schemes • Reputation and legal liability

Global Retailing

• Environmental Factors - Saturation in the home country market - Recession or other economic factors - Strict regulation on store development - High operating costs • Critical Question - What advantages do we have relative to the local competition?

Discount Retailers

• Full-line discounters - Wide variety of merchandise; Ex. Walmart • Warehouse clubs - Memberships fees; Ex. Sam's Costco • Dollar stores - Sell at a single low price; Ex. in U.S. Family Dollar, Dollar Tree, Internationally, My Dollarstore has rapid growth • Hard discounters - Limited assortment, rock bottom prices

Types of Retailers

• Hypermarkets are hybrid retailers combining the discounter, supermarket & warehouse club; 20,000-30,000 sq. ft. • Supercenters have lower priced groceries plus general merchandise; half the size of a hypermarket • Superstores aka Category Killers & Big-Box sell vast assortments of a product category - Toys "R Us, Home Depot, IKEA Shopping Malls • Groups of stores in one place • Enclosed or outdoor • Leisure destinations offer entertainment & convenience Outlet Stores • Shops that offer excess inventory , out-of-date merchandise or factory seconds • Popular in the US, expanding into Europe & Asia

Competitive Behavior

• If competitors do not adjust their prices in response to rising costs it is difficult to adjust your pricing to maintain operating margins • If competitors are manufacturing or sourcing in a lower-cost country, it may be necessary to cut prices to stay competitive

Door-to-Door Selling

• In Japan, the biggest barrier facing U.S. auto manufacturers isn't high tariffs; rather, it's the fact that half the cars that are sold each year are sold door-to-door. Toyota and its Japanese competitors maintain showrooms, but they also employ more than 100,000 car salespeople. Unlike their American counterparts, many Japanese car buyers never visit dealerships. In fact, the close, long-term relationships between auto salespersons and the Japanese people can be thought of as a consumer version of the keiretsu system discussed in Chapter 9. Japanese car buyers expect numerous face-to-face meetings with a sales representative, during which trust is established. The relationship continues after the deal is closed; sales reps send cards and continually seek to ensure the buyer's satisfaction.

Terms of the Sale

• Incoterms - Ex-works - seller places goods at the disposal of the buyer at the time specified in the contract; buyer takes delivery at the premises of the seller and bears all risks and expenses from that point on. - Delivery duty paid - seller agrees to deliver the goods to the buyer at the place he or she names in the country of import with all costs, including duties, paid

Global Retailing Strategies

• Organic growth - Company uses its own resources to open a store on a greenfield site or acquire one or more existing retail facilities • Franchise - Appropriate strategy when barriers to entry are low yet the market is culturally distant in terms of consumer behavior or retailing structures

Cost-Plus Pricing

• Rigid cost-plus pricing means that companies set prices without regard to the eight pricing considerations • Flexible cost-plus pricing ensures that prices are competitive in the contest of the particular market environment

Low Inflation Environment

• Should make it possible to raise prices but consider the global competitive environment • U.S. inflation rate in the 1990s was low and strong demand had factories at capacity • However, mid-1990s Europe had high unemployment, Asia was in recession • By the end of the decade, globalization, the Internet, low-cost products from China, and costconscious consumers became other constraining factors

Companion Products or "Razors and Blades" Pricing

• The biggest profits in the video industry come from sales of game software; thus, even though Sony and Microsoft may lose money on console sales, games are generating substantial revenues and profits. This illustrates the notion of companion products: a video game console is worthless without games, a DVD player is worthless without movies, a razor handle is worthless without blades, a cellular phone is worthless without a calling plan, and so on

Gray Market Goods

• Trademarked products are exported from one country to another where they are sold by unauthorized persons or organizations • Occurs when product is in short supply, when producers use skimming strategies in some markets, and when goods are subject to substantial mark-ups

Target Costing

• Use by Japanese companies to control costs, save on production expense, & create competitively priced global products • Also called Design to Cost