Five Forces Model: Differences of Product and Global Pricing - Assignment Example

Five forces model”, Differences of Product/Brand, & Global pricing Outline: Introduction Answers to questions Q1. Outline Porter’s “five forces model” of industry competition. How are the various barriers of entry relevant to global marketing? Q2. What are the differences among a local, a national, an international, and a global product or brand? Cite examples Q3. What are the three alternative approaches to global pricing? Which one would you recommend to a company that has global market aspirations? Conclusion Introduction: The world today is rapidly shrinking due to faster communication, changing technology and transportation etc. Today many companies operate internationally. Nestle, Toshiba are familiar companies all over the world. Competition has increased extensively and has resulted in improved products. Going global, through entering foreign market, is risky because a global firm has to plan, operate and coordinate their activities globally. Unstable governments, foreign exchange problems, trade and tariffs barriers etc make it risky. So entering a global market requires a series of decisions like whether to go global, which are the foreign markets to be entered, how to enter into them, the marketing programs and marketing organization required for it. We can see the various barriers of entry; differences among a local, national and international brand; and the approaches to global pricing in detail. Q1. Outline Porter’s “five forces model” of industry competition. How are the various barriers of entry relevant to global marketing? Michael Porter has developed a framework called Porters Five Forces which explains the five forces affecting an industry. This model can be applied to understand the profitability of a firm in an industry, to identify the strength and weakness of the firm, to avoid the wrong decisions. Entering into a business requires thorough assessment of the potentiality of the industry. The Five Forces model explains the competitive five forces which shape an industry and the intensity of competition and the profitability of the industry. So management can exploit the entire market through thorough analysis by Porters Five Forces. The five forces identified by Porter are as follows: 1. The entry of competitors: when a new firm enters into the industry it has to face a cut throat competition. Some factors limit the entry and they are known as “barriers of entry.” If entering the market requires only limited cost and time, then it will attract other firms also to enter the market and weaken the position. 2. Power of suppliers: if there are only a few suppliers then they will have substantial power over the company’s margin and volume. The supplier is more powerful if there are only few suppliers for a particular product, no substitutes are available, the buyer cannot do anything without it, and the profit is high for the supplying industry. 3. Power of buyers or customers: if there are only a few buyers, large volumes are likely to be purchased by them. Besides if there are substitutes available, the customers can do without large purchase, then the buyers can wield power over the margins and volume of the company. 4. Threat of substitutes: if there is a substitute available at a lower cost to the customers, then they will switch over to it, which will badly affect the firm. 5. Competitive rivalry: if there are more competitors in the market offering quality product and services, then it will affect the margin of the firm. The various barriers of entry will restrict a new firm from entering the market. if the firm makes a good profit, it will attract other firms which will drive away the profits. If the firm is the market leader, stiff competition is required, to exist in the new market, and it requires high cost of production and technology, then entering by new firms is likely to be restricted. In that case the leading firm can continue its position in the global market. If the existing firm does not have economies of scale then new firms are likely to enter it and make profits. (Strategic management: Porter’s five forces: A model for industry analysis, 2007). Q2. What are the differences among a local, a national, an international, and a global product or brand? Cite examples Branding is very important in marketing a product. A brand builds a strong belief or values in the minds of customers. A local brand or product is the product marketed in a local or regional market. Marketers of local products have greater knowledge about the market and build a strong distribution and personal relationship with the trade. The local brand identifies the needs of the local market; packaging and transportation requirement and identifies the geographical needs. The local brand has a strong consumer relationship and has a nostalgic affect in the minds of the customers. It requires less investment. Snapple Beverage Corporation is an example of a regional brand. At first Snapple had been a regional brand available only in the local and regional outlets and convenience stores. (Kotler, P. 424). National brand is a brand distributed nationally. Sometimes it is distributed either locally or regionally. So it encompasses the benefits of a local brand. An example is Matsushita Electric Co which sells only in Japan and Asia. Matsushita Electric Co is the seller of home appliances and personal grooming devices. (National – brand of Matsushita electric Co, 2005). Global brand is a brand used to identify the product or services of a seller worldwide and differentiate them from the competitors. A global brand helps in building good will, product experience, and advertising. It also helps to identify the core and strategy of business. Global brands may increase the sales, as internet and other technologies are used for advertising and accelerating the sales. Promotion and standard packaging, advertising economies are some of its advantages and thus resulting in a worldwide image for the company. Major examples of global brand are Coco-Cola, Microsoft etc. (Girboveanu, 2007). Q3. What are the three alternative approaches to global pricing? Which one would you recommend to a company that has global market aspirations? Pricing is an important aspect in global marketing because the price influences the overall strategy of the business. Market demand and competitive conditions in the global market makes the global pricing decision very complex as compared to the domestic market. There are three approaches to global pricing: standard world pricing, market differentiated pricing and dichotomous pricing. 1. Standard world pricing refers to fixing a unique price throughout the world for the same product. Standardized world pricing is very easy for fixing the price and it is equitable. As there is only one price it will not help arbitragers to earn profit. Local, economics and demand conditions are ignored while fixing the price 2. Market differentiated pricing, refers to fixing the price of the product according to the market. Each market has its own price which is different from other market. The main advantage is that the price is fixed according to the market conditions prevailing in the global market. The price could be fixed by considering the transportation cost, distribution cost and exchange rate fluctuations. But the main drawback is that it leads to arbitrage and grey marketing. 3. Dichotomous pricing is fixing a standardized price in the foreign market which is different in the domestic market. It combines both the advantages and disadvantages of standardized world pricing and market differentiated pricing. Each pricing has its own advantages and disadvantages. A company that has global market aspirations can adopt the market differential pricing as it relies upon the market conditions and other costs associated with selling and distribution of product in the foreign market. The only thing that has to be done is, make some arrangements to control arbitrage and grey marketing. (Abrol, & Halla, (n.d), p. 421). Conclusion: Since 1969, a number of multinational corporations have come up worldwide, and these control major markets. In this scenario, the company has to think globally and develop business. International marketing has thus become a challenging task. A company has to keep in mind local, national and global brand, different pricing approaches, while going global. Global marketing helps a company to grow by expansion and the complexities of global marketing require thorough planning and implementation. Reference Abrol. N., & Halla, V. K. (n.d). International Business Environment. & Management. 421. Anmol Publications PVT. LTD.9th Revised and Enlarged Edition. Girboveanu, Sorina. (2007). Global or National Brands? Central and Eastern European Online Library. Retrieved April 10, 2009, from www.ceeol.com/aspx/getdocument.aspx?logid=5&id=74741324-22AE-4BFF-8E05-4B359B915967 Kotler, Philip. Marketing management (11th Edn). Pearson Education, P. 424. National – brand of Matsushita electric Co. (2005). Japan 101. Retrieved April 10, 2009, from http://www.japan-101.com/government/national.htm Porter’s five forces - competitor analysis. (2008). Rapidbi. Retrieved April 6, 2009, from http://www.rapidbi.com/created/porterfiveforces.html Strategic management: Porter’s five forces: A model for industry analysis. (2007). QuickMBA. Retrieved April 10, 2009, from http://www.quickmba.com/strategy/porter.shtml Read More