Unit 9- Global Marketing Strategy Assignment
Instructions:
Discuss three advantages of standardizing the marketing mix worldwide.
Q2. When companies sell their goods abroad, they face a price escalation problem. Explain what causes price escalation and describe the choices available to companies when setting prices to avoid price escalation problems in a foreign country.
Solution
Unit 9- Global Marketing Strategy Assignment
Q1. Discuss three advantages of standardizing the marketing mix worldwide.
Management of costs is one key consideration when a company decides on a proper marketing mix. Standardizing the marketing mix in terms of products, promotional practices and materials, packaging materials, transportation channels etc is a great way to leverage on economies of scale which effectively reduces a company’s overall operating expenditure. For instance, due to a standardized marketing mix, a multinational company is able to enter into long term contractual agreement with suppliers, which helps in budgeting and extension of a similar quality of work at a global scale. It also generates a level of expertise in a particular area due to the repetitive nature of a standardized marketing mix. Reducing costs effectively grows the company’s profits.
Multinationals benefit greatly from marketing mix standardization with the ease with which marketing strategies can be transferred from one territory to the other. Standardization of pricing, promotion and other marketing strategies means that staff can easily be moved from one region to another and still effectively deliver on their marketing targets since the working environment would not significantly differ.
Companies such as Coca-Cola, Google and other multinationals have greatly benefited from standardized marketing mix in terms of brand image. One reason why Coca Cola for instance is so recognized as a brand worldwide is because the company has adopted similar marketing strategies in all their markets (Viswanathan, 2007). For instance, they run the same promotional strategies including advertisements across the globe, same product all over the world, the packaging is standardized, distribution channels etc. This not only makes them very successful, but also creates a sense of predictability and confidence in the brand.
Q2. What causes escalation and how can it be avoided?
Often, products tend to be more expensive in foreign countries than their countries of production, a concept referred to as price escalation. Price escalation is the price increase that is associated with the added costs related to tariffs, taxes, distribution channels, etc (Larson, 2009). It follows that the causes of price escalation would include shipping costs, longer channels of distribution, profiteering by distributors, tariffs and other taxes etc.
The pricing choices available to companies in order to avoid price escalation problems would be to adopt any of the following three methods. Uniform pricing, market based pricing, cost based pricing.
Uniform pricing is the selling of a product at the same price regardless of the market. For instance, a company may decide to price a product at say $15 regardless of the market or region. This price is obviously determined after taking into consideration all the factors such as shipping, taxes, distribution and other charges. It’s difficult to come up with a uniform price, especially considering the myriad of factors that affect pricing such as those listed above, but if a company can come up with such a price, the it would solve the price escalation challenge.
Market based pricing, on the other hand is informed by the prices charged by other suppliers of the product. If the other dealers are selling, say a 1kg packet of washing powder at $60, a foreign company may find it difficult to price its product at a significantly higher price than that. The decision to price their 1kg washing powder will therefore be informed by the prices charged by the other players in the market. This will eliminate the need to escalate a price as such market prices are almost a reflection of all the costs associated with bringing the product to the market.
Cost base pricing, is anchored on the recognition that a company has to make profit for any product that it takes to the market, whether local or foreign. This means that the company will price its product after taking into consideration all the costs of production and packaging, shipping, taxes etc, including a markup which represents the company’s profit for the particular product.
References
Larson, R (2009) Global Marketing Strategies and Implications for US Based Firms. Retrieved from: http://digitalcommons.liberty.edu/cgi/viewcontent.cgi?article=1007&context=busi_fac_pubs
Viswanathan, N.K (2007) The fundamentals of standardizing global marketing strategy, International Marketing Review, retrieved from: https://datapro.fiu.edu/campusedge/files/articles/dicksonp030813442096.pdf