International Marketing Exam 3 Flashcards
(33 cards)
Factors That Influence Product Adaptations in Foreign Markets
cultural differences, legal & regulatory requirements, climate and environmental conditions, economic factors, technological infrastructure.
Cultural Differences
Local customs, values, and consumer behavior can require changes in design, packaging, or branding. For example, McDonald’s adapts its menu in India by offering vegetarian burgers and avoiding beef products.
Legal & Regulatory Requirements
Product ingredients, safety standards, and labeling laws may differ. For example, in the EU, cosmetics companies must meet strict animal testing regulations that differ from those in the U.S.
Economic Factors
Consumers’ purchasing power varies, influencing the need for lower-cost product versions in developing countries. For example, Nokia once launched durable, low-cost phones specifically for African markets.
Climate and Environmental Conditions
Products may need to be adapted to perform in different climates. For instance, detergents in cold climates must work in cold water.
Technological Infrastructure
Availability of power sources, internet, or mobile connectivity can impact product design. A company might offer simplified versions of electronic products in countries with limited broadband access.
The Five Characteristics of Innovation
Relative Advantage, Compatibility, Complexity, Trialability, Observability
Relative Advantage
The degree to which a product is perceived as better than existing options. For example, smartphones offered a clear advantage over basic mobile phones by combining communication, internet, and multimedia features.
Compatibility
How well the product fits with the existing cultural norms, values, and experiences. Electric scooters may face slow adoption in cities without proper bike lanes, making them less compatible.
Complexity
Products that are easy to use are adopted faster. A new app with a simple, intuitive interface will gain traction more quickly than one with a steep learning curve.
Trialability
The ability to try the product on a limited basis. Free trials of software or demo versions of appliances encourage adoption.
Observability
If the benefits are visible to others, adoption is quicker. Wearable fitness trackers are highly visible, and their use often sparks interest among peers.
The Country of Origin (COO) effect
refers to the influence that a product’s country of manufacture has on consumers’ perception of its quality and value.
For example, German cars like BMW or Mercedes-Benz benefit from a positive COO effect, as Germany is associated with engineering excellence. Conversely, a luxury item from a country not known for high-end goods may face consumer skepticism.
However, COO can be a double-edged sword. In some markets, consumers may prefer domestic products for national pride or distrust foreign-made items.
Variable Cost Pricing
Prices are based only on variable production costs (e.g., materials, labor). This method is often used when entering price-sensitive markets to remain competitive. For instance, a company may sell smartphones in India at or near production cost to gain market share, even if they make little or no profit initially. So, each cup costs $2 to make. That’s your variable cost — it’s the cost that changes depending on how many cups you make.
Now, variable cost pricing means you sell your lemonade for just enough to cover that $2 cost — no more, no less.
So if someone buys a cup, you get $2, and you spend $2 to make it. You don’t make any profit, but you don’t lose money either.
Full Cost Pricing
Full cost pricing is a practice where the price of a product is calculated by a firm on the basis of its direct costs per unit of output plus a markup to cover overhead costs and profits. All costs (fixed and variable) are included, ensuring that each unit sold contributes to overall profitability. A luxury brand like Rolex may use full cost pricing to maintain premium positioning and profit margins, regardless of market. So in total, you spend $5 to make enough lemonade for the day. That’s the full cost — everything it takes to make the lemonade.
Now, if you want to make some money too (because you did all the work!), you add a little more, maybe $2 for yourself.
So you charge people $7 total. That’s full cost pricing:
👉 You add up everything it costs to make something,
👉 Then you add some extra to make a profit.
That’s how a business decides how much to charge!
Factors That Contribute to Price Escalation in Emerging Markets
Tariffs and Import Duties, Transportation Costs, Exchange Rate Fluctuations, Middleman and Distribution Layers, Compliance and Adaption Costs.
Price escalation
refers to the phenomenon where a product’s price becomes significantly higher in foreign markets compared to the domestic market. This is common in emerging economies due to various contributing factors: Tariffs and Import Duties, Transportation Costs, Exchange Rate Fluctuations, Middleman and Distribution Layers, Compliance and Adaption Costs.
Tariffs and Import Duties
Governments may impose taxes on foreign goods, raising prices.
Transportation Costs
Shipping and logistics can be expensive in countries with poor infrastructure.
Exchange Rate Fluctuations
Unfavorable exchange rates can increase the local cost of imported goods.
Middleman and Distribution Layers
More intermediaries in the supply chain add markup at each stage.
Compliance and Adaption Costs
Products often require modifications or certifications to meet local standards.
Price Skimming
Involves setting a high price initially to “skim” profits from the top segment of the market. It’s used when demand is inelastic, and the product is unique or innovative. For example, Apple uses skimming pricing for new iPhones in international markets.
Market Penetration Pricing
Involves setting a low price to quickly gain market share and attract price-sensitive customers. This strategy is common for entering competitive or emerging markets. Xiaomi used penetration pricing to grow rapidly in India’s smartphone market.
