INTERNATIONAL MARKETING

THE GENRE OF INTERNATIONAL TRADE

International marketing refers to the marketing of goods and services in two or more countries New markets may be sought for the follow !g reaso!s A firm wants to expand its product life cycle A firm may want to explore new markets Because of intense competition in a particular segment, a firm may want to escape to less competitive markets The growth prospects in domestic trade may be limited There must be a significant amount of risk involved in carrying out a specific business A""or# !g to M "hael $orter% !ter!at o!al market !g s "r t "al a!# &ust f e# for the follow !g reaso!s Cost leadership Differentiation ocus The 'r !" 'le of "om'arat (e a#(a!tage This principle states that international trade without barriers is beneficial to all countries involved in it If a country spends !s" #$%& on manufacturing a product and the same is available in overseas market at !s" '%& then the country should obviously go for importing the product The s g! f "a!"e of "om'arat (e a#(a!tage Countries should speciali(e in what they produce best" Increased speciali(ation in the production of a good can also lower the opportunity cost of producing that good International trade should be allowed to take place without restrictions" ree trade plus speciali(ation will result in an increase in the world)s output and all countries will end up sharing the benefit Howe(er th s 'r !" 'le #oes !ot a''ly ! 'ra"t "e

ree trade does not always exist" *ome countries may want to promote domestic industries thereby restricting imports Transportation and transaction costs may be very high Countries might produce similar goods but have uni+ue characteristics to make them competitive in any part of the world The a#(a!tages of free !ter!at o!al tra#e *ome countries may have a surplus of raw materials" A country with deficit in the same raw material will be well served by importing the same It increases competition and thereby ensuring +uality products It creates a huge market which allows firms to expand It also promotes political links It provides a variety of choice, lower prices and +uality products to the consumer

INTERNATIONAL TRADE

There are # ffere!t ways by wh "h a market "a! be segme!te# Culture ,eography *ocio economic groups Consumer behavior Technological change MARKET )*ANNING -stablishing a global benchmark Assessing the political risk Institutional environment -ase of market access Access to resources .abor cost ENTR+ O$TION) -xporting products to other countries /verseas branches .icensing Contracts ranchising Turnkey pro0ects 1oint ventures oreign direct investment

THE GLO,AL MARKET

$orter-s f (e for"es mo#el "ategor .es f (e "om'et t (e for"es The threat of new entrants to the industry The threat of substitute products The bargaining power of consumers The bargaining power of suppliers !ivalry among current competitors FRAGMENTED IND/)TR+ It is an industry which is populated by a large number of small and medium si(e companies A! !#ustry s fragme!te# for the follow !g reaso!s Barriers to entry are low Transport costs are high *mall scale firms will be more successful in coping up with erratic demand .ocal image and reputation is critical The market itself may be fragmented" There may be many groups of buyers *ON*ENTRATED IND/)TRIE) Concentrated industries are dominated by a large number of small firms I!#ustr es be"ome "o!"e!trate# for the follow !g reaso!s It is cheaper to produce in bulk The resource re+uired to survive in the business is huge -ntry barriers are very high A large firm can benefit from an integrated distribution network Consumer needs are stable There are economies of scale

FA*TOR *ONDITION) D ffere!t !at o!s ha(e # ffere!t sto"k of fa"tors

2uman resources 3hysical resources 4nowledge Capital Infrastructure DEMAND *ONDITION) There are very few cultural impediments *ophisticated and demanding buyers set standards A high rate of growth will lead to firms taking advantage of the new technology at a +uicker rate -arly saturation of the home market will force a firm to look at markets abroad )TAGE) IN *OM$ETITI0E DE0ELO$MENT M "hael $orter a!alyses e"o!om es !to four # ffere!t stages actor driven Competitive advantage comes from cheap labor, raw materials, etc Investment driven Competitive advantage is based on investing for the future, as in, buying foreign technology and improving upon it Innovation driven irms create new technologies and industries 5ealth driven The economy lives on its past wealth" It is purely concerned with maintaining its competitive position and the social status +uo" Innovation and competition remains narrow

)IGNIFI*AN*E OF */LT/RE
*ulture embra"es the follow !g as'e"ts of so" al l fe Belief and values

Customs Artifacts !ituals HIGH *ONTE1T AND LO2 *ONTE1T */LT/RE In a high context culture the message must be interpreted from the context" Communication barriers will emerge if you do not know the person you are dealing with In a low context culture the context is not important" or example if we take a railway time table words should mean exactly what they say Fa lure to u!#ersta!# "ultural # ffere!"es may "ause 'roblems w th ea"h of the market !g m 3 $ro#u"t Coffee is preferred in a very strong dark form in -urope but in 6* it is the opposite $romot o! Chevrolet nova failed miserably in .atin America" The reason being in *panish, 4!o (a- means 4#oes !ot ru!$r "e .arge packages may not be bought by customers in some countries because their disposable income is low $la"e In some countries super markets are popular" In other places people prefer intimate personal stores for grocery and foodstuffs $eo'le Depending on the country the attitude will differ $ro"ess In some countries beef is banned $hys "al e( #e!"e In service evidence the physical evidence is indicated by the d7cor and service given to the customer

)O*IAL AND */LT/RAL FA*TOR) A clear understanding o the cultural interrelationships in government circles, hierarchical relationships and political influence may be critical in some markets and countries To " te a! e3am'le Different style is needed for dealing with officials from high context cultures as compared to low context cultures /fficials may have formal authority but no decision making power irms suffer if the government of the home country and the country with which it is doing trade gets strained or vice versa Different culture have different attitude towards gifts There may be conflict between different government departments ,overnment is susceptible to pressure from power groups MARKETING MI1 I))/E) Appearance need to be business like rather than extravagant 3eople need to offer good service and be very careful while dealing with their clients 3romotion is mainly done through personal selling inancial pricing is not the decisive factor" The opportunity cost is more critical */LT/RE AND THE ORGANI5ATION -ach company has got its own set of value systems Custom is embodies in behavior

FA*TOR) INFL/E*NING A ORGANI5ATION) */LT/RE The founder of the organi(ation lays the set of value systems which has to be inculcated by each and every employee

The past history of the organi(ation plays a very critical role in reinforcing the culture of the organi(ation An organi(ation with a specific set of value systems attracts likeminded people

THE HOF)TEDE MODEL OF NATIONAL */LT/RE) Hofste#e 'o !te# out that "ou!tr es # ffer ! the follow !g # me!s o!s 3ower distance 6ncertainty avoidance Individualism % Collectivism 8asculinity % emininity

INTERNATIONAL MARKET RE)EAR*H The s'e" f " ob&e"t (e of !ter!at o!al market !g resear"h shoul# !"lu#e the follow !g Identify new attractive markets -nhance profits by identifying opportunity and reducing threats 4eep themselves aware of the latest market trends 8onitor change in consumer tastes and preferences 4nowledge of competitor)s plans and strategies Identifying the feasibility of introducing new products Identify reliable source of market information

)O/R*E) OF *OLLE*TING DATA 3!I8A!9 A:D *-C/:DA!9

ANAL+5ING O0ER)EA) MARKET)

THE INTERNATIONAL MARKET RE)EAR*H $RO*E)) 6IMR7

8onitoring international markets Investigation !esearch ,eneral Background Analysis 8arket Access Analysis 8arket *tructure Competitor Analysis 8arket 3ractices Analysis 3redicting demand pattern Indentifying clusters of markets with similar characteristics $RO,LEM) FA*ED IN IMR !esearching numerous markets *econdary data issues *ource for collecting primary data 6sing external agencies 3reparing files on various countries

$LANNING FOR INTERNATIONAL MARKETING

REA)ON) FOR ENTERING THE INTERNATIONAL MARKET Chance entry

.ife cycle changes Competition -conomies of scale ;ariable +uality .ucrative markets

FA*TOR) TO ,E *ON)IDERED ,EFORE ENTERING INTERNATIONAL MARKET) Choice of market and extent of involvement !isk involved .evels of commitment

GOOD $RA*TI*E) IN INTERNATIONAL MARKETING $LANNING There are three le(els of 'la!! !g wh "h shoul# be "o!s #ere# ! !ter!at o!al market !g /perational 3lan <short range from one to three years= *trategic 3lans Corporate 3lans

$ROD/*T MARKET MATRI*E) The two most widely used product market matrices are the ,*G MATRI1 and the GENERAL ELE*TRI* ,/)INE)) )*REEN

MODELLING THE )TRATEGI* $LANNING $RO*E)) $rel m !ary a!alys s a!# s"ree! !g 8atching company and country needs Basis for screening Analy(ing environmental factors

Choosing or narrowing down on the countries to market inancial commitments A#a't !g the market !g m 3 to target markets De(elo' !g the market !g 'la! Im'leme!tat o! a!# "o!trol

HO2 TO ENTER AN O0ER)EA) MARKET

The f rm shoul# "o!s #er the follow !g Market !g ob&e"t (es The firms marketing ob0ectives will decide the extent to which it will participate in the international market" If the firm is expecting low sales volume or if the product is on sale for a very limited period only then setting up an overseas production facility will not be feasible ) .e of the f rm

The firm)s si(e is also a decisive factor" If the si(e of the firm is small then it needs to have a strong finance base to provide capital re+uired for investment and the day to day operations of the company till such time the company is able to create a reputation for itself E!try restr "t o!s *ome countries have a restriction on imports" 2owever of the firm decides to set up a manufacturing facility in that country then the government may agree to the proposal since it will generate employment opportunities for the people of that country Fee#ba"k In case a firm appoints a marketing consultant it may receive a feedback which may say that direct export to the country is feasible and profitable compared to setting up a facility Lear! !g *ur(e If a firm has decided to enter a specific industry in a country it has to be prepared to wait till the business is stabili(ed" The firm might make lot of mistakes which may end up in monetary loss" 2owever the firm should look at the long term benefits which will be forthcoming from this exercise R sks If a country has an unstable government there is a huge degree of political risk involved" The policies of the party in power might not be suitable for the firm *o!trol A firm needs to have full control over the marketing mix and the distribution channel" If a firm is setting up its own subsidiary the company is in a better position to take charge in difficult situations" 2owever indirect exports through an agent will not give the company any kind of control

E1$ORTING The principle benefit is that exporters are able to concentrate production in a single location giving economies of scale and consistency of product +uality irms which lack the knowhow and experience can try international marketing on a small scale -xporting helps firms to execute and test their plans and strategies -xporting helps firms to reduce their operating, administrative and manpower overheads

INDIRE*T E1$ORT) In this the firm)s goods are sold abroad by other organi(ations There are four ways of !# re"t e3'ort E3'ort Houses These are firms which facilitate the movement of goods from one country to another" They act as export principals" They buy goods from the producer and sell them abroad Confirming houses also act as principals" Their main function is to provide credit to customers when the company is not prepared to do so A#(a!tages The producer can reap the benefit of the export house)s knowledge and contacts The producer does not have to bear the overhead costs involved in export marketing In lot of cases export houses are given preferential treatment by companies 5hen export agents are used the producer retains considerable control D sa#(a!tages The producer is at the mercy of the agent ,oodwill created due to the +uality of the product directly goes to the export house and not the producer -xport houses deal with lot of producers so their level of commitment is very low -xport houses normally do not enter into long tern relationships with producers

DIRE*T E1$ORT) 6nder this the producer takes the responsibility of marketing the goods abroad )ALE) TO THE FINAL /)ER 6nder this there is no intermediary" Typical customers include industrial users, government and mail order customers DI)TRI,/TOR) 8 )TO*KI)T) Distributors are different from wholesalers in the sense that they have a specific geographical area to cater to" 8oreover they have to maintain only a minimum stock level

*OM$AN+ ,RAN*H OFFI*E A,ROAD A firm can have its own office abroad A#(a!tages 5hen sales reach a certain level branch office becomes more effective than agents The commitment of the branch will be very high The producer retains complete control The producer agents give accurate inputs about the market scenario Customer service can be improved and maintained D sa#(a!tages 2igher investment, overhead and running costs are entailed There is a high level of political risk The firm will have to comply with the country)s legal legislation E *OMER*E This concept is more in the nascent stage

LI*EN)ING AD0ANTAGE) The l "e!sor may 'ro( #e a!y of the follow !g 8anufacturing know how Technical advice and assistance 8arketing advice and assistance !ight to use a trademark or brand It does not re+uire any investment

It enables entry to a foreign market which is otherwise extremely difficult due to tariffs, +uotas and so The licenser has excellent knowledge of local market conditions :ew products can be introduced +uickly due to low investment re+uirements DI)AD0ANTAGE) !evenues from licensing is very low A licensee may become the licensors competitor" The licensee may ac+uire the knowledge and can turn into a competitor The licensee may not exploit the market fully It is difficult to maintain control over the licensor *ONTRA*T MAN/FA*T/RE 6nder this, the firm, as in, the contractor makes a contract with another firm who becomes the contractee and either manufactures or assembles the product on behalf of the producer AD0ANTAGE) There is no need for any investment !isk associate with currency fluctuation is avoided Transport and production costs are low

9OINT 0ENT/RE A 0oint venture is an arrangement when two or more competing firms 0oin forces for manufacturing, financial and marketing purposes and each has a share in both the e+uity and management of the business, sharing profits % losses AD0ANTAGE) As the capital outlay is smaller it is an attractive proposition for small or risk averse firms 1oint venture helps in covering large number of countries It can reduce the risk of government intervention as a local firm is involved It gives absolute control over the market

If the firm is a local firm then it will have excellent knowledge of the local market conditions )TRATEGI* ALLIAN*E) The participants tend to be competing firms from different countries seeking to enhance their competencies by combining resources )trateg " All a!"e "a! be of three forms 3roduction based alliance Distribution based alliance Technology based alliance 2HOLL+ O2NED O0ER)EA) $ROD/*TION -stablishing and running a production facility overseas market demonstrates the firm)s commitment to the market" Another option is to ac+uire an existing firm A#(a!tages The firm does not have to share it profits There will be no losses arising from a conflict created due to disagreement There are no communication barriers

D sa#(a!tages It might be difficult to get +uality manpower *ome overseas governments discourage a #$$> ownership

ORGANI5ING FOR INTERNATIONAL MARKETING

ORGANI5ATION ,+ GEOGRA$H+ A#(a!tages Countries tend to be integrated economically Certain kind of expertise can be centered within a region Identification and exploitation of regional opportunities and monitoring of threats is easy Clear line of authority ensures that there is no communication barrier D sa#(a!tages 3ossibility of lack of coordination between regions

riction between head+uarters and region Orga! .at o! by 'ro#u"t or bra!# A#(a!tages :ew product lines can be added easily D sa#(a!tages 5hen the product division feels that the focus of sale should be on the domestic region, international customers might get dropped 6se of different ad agencies might create problems Orga! .at o! by fu!"t o! In functional organi(ations top managers have global responsibility" It is suitable for firms which have narrow product lines or where product expertise is not a very important factor Orga! .at o! by 'ro&e"t 5hen a company is involved in large scale production or assembly operations then it may be organi(ed into a series if pro0ect groups which temporarily brings staff together from different departments of the organi(ation

Matr 3 orga! .at o! A matrix is one in which unity of command is compromised DO GLO,AL FIRM) REALL+ E1I)T: 8ost multinationals other than those based in small nations have less than half of their employees abroad /wnership and control of multinationals remains restricted The top management is rarely as multinational as the firm)s activities The bulk of the research and development is done in the home country 5hen capital is limited global companies stick to the home market $RO,LEM) IN H/MAN RE)O/R*E MANAGEMENT The follow !g ssues !ee# to be ke't ! m !#

In countries with low level of literacy more effort will have to be put into training Can overseas staff practically expect promotion if they do well? Depending on the country)s culture the employees might react favorably or unfavorably towards an appraisal If the company is spread over many countries it becomes difficult for the company to integrate the entire set of employees and make them committee to pursue a common goal" This happens mainly due to the difference in time across various countries of the world

INTERNATIONAL $ROD/*T MANAGEMENT

DEFINING A $ROD/*T A product is the total utility or satisfaction that a buyer receives as a result of the purchase *ORE $ROD/*T The core product refers to the need which is being satisfied or the problem which is being solved by the product" The concept of core product varies between country to country" 1ust to cite an example, a bicycle will be used a mode of transportation in third world countries whereas in developed countries it is used for recreation or sport FORMAL $ROD/*T The formal product is what the market recogni(es as a tangible offer" It comprises of the features, styling, +uality, packaging and brand name" ;ariations in si(e, color, etc, may vary from country to country

A/GMENTED $ROD/*T The augmented product includes the core and formal product and the additional services and benefits which surround a product" They may offer the following@ !eputation Delivery Before and after sales service ,uarantee Installation and maintenance FA*TOR) EN*O/RAGING $ROD/*T )TANDARDI5ATION -conomies of scale -asier management and control 2omogeneity of markets

FA*TOR) EN*O/RAGING ADA$TATION 8 MODIFI*ATION MANDATOR+ MODIFI*ATION This means the concerned firm will have to comply with the laws of the particular state or city" If we take the case of a car then there will be mandatory legal re+uirements" Apart from this there will also be technical re+uirements depending upon the country which the producer is targeting" In some countries modification of the heating % cooling systems may be re+uired for different climatic conditions DI)*RETIONAR+ MODIFI*ATION Discretionary modification is called for only to make the product more appealing to different markets" It results from different customer needs, preferences, and tastes" These differences become +uite apparent from market research and analysis, customer feedback, etc OTHER A)$E*T) OF $ROD/*T DE*I)ION) $A*KING 2ere the company has to decide whether to go for standardi(ed packing or design the packing depending on the customer)s re+uirement LA,ELLING

.abeling is an example of mandatory modification re+uired by government regulations" This usually concerns listing contents or use of appropriate language" *ome countries have strict laws with respect to describing the contents of each package )ER0I*ING This is a very critical area for organi(ational success" The service problem is a very complex one $ROD/*T LIFE *+*LE The International Trade .ife Cycle is an adaptation of the product life cycle" rom the perspective of a high income country the pattern of development is as follows $HA)E ONE The product is developed in the high income country There are two ma ! reaso!s for th s 2igh income countries provide the greatest demand potential The company should ensure that the production facility is close to the market to ensure that any change in the consumer)s tastes or preferences can be dealt with +uickly $HA)E T2O irms in the innovators export market begin to produce the product domestically" The result is the 6"4 market is shared by the innovative 6"* firm and the 6"4 firms $HA)E THREE /verseas producers compete in export markets" The cost of the 6"4 products begins to fall as they gain economies of scale and experience" They may also en0oy the benefit of lower costs of labor, materialsA etc" The 6"4 firms now begin to compete with the 6"* producers in third party export markets $HA)E FO/R /verseas producers compete in the firm)s domestic markets" The 6"4 firms become so competitive due to their low production costs that they begin to compete with the 6"* firms in the 6"* domestic market" The cycle is now complete

$ROD/*T ELIMINATION The following factors should be considered@ Current profitability

After sales service implications -ffects of the elimination on the sale of other complementary products

,RANDING DE*I)ION) The following +ualities are generally regarded as desirable for a brand name *uggests benefits *uggests +ualities Be easy to pronounce, recogni(e and remember Be distinctive Be meaningful

THE ROLE OF $RI*ING

*ost base# 'r " !g Total cost is the basis for pricing" This is the most pragmatic policy in markets where price is the decisive factor" In cost based pricing there is no focus on market conditions Dema!# base# 'r " !g 6nder this the company sets the prices depending upon the customer)s ability and willingness to pay $e!etrat o! 'r " !g This is a policy of lowering prices when a firm launches a product in a market which already has several competitors" This is a policy in which the short run profits are compromised and the company looks at a long term ob0ective )k mm !g 6nder this the firm sets high prices when the product is launched in the market" They spend heavily on advertisements and promotional campaign" As the product gradually moves down the product life cycle the company starts lowering the price of the product $r "e es"alat o!

5hen a product moves through the value chain there are additional costs which gradually accumulate" 5hen the company is targeting a market abroad the additional costs come by way of shipping, storage, insurance and so on Marg !al *ost $r " !g 8 Dum' !g Dumping is the sale of goods in an overseas market at a price lower than what would be charged in the home market Tra!sfer 'r " !g 5hen a company runs each unit as a profit centre, semi finished or finished products may have to be transferred between these units" The firm has to decide whether the transfer price between units of the same organi(ation should be e+ual to, higher than, or lower than the open market arm)s length price

INTERNATIONAL MARKETING *OMM/NI*ATION)

Issues ! !ter!at o!al market !g "ommu! "at o!s $romot o!al ob&e"t (e In new or developing markets the promotional ob0ective will be to create awareness and encourage trial" In mature markets the ob0ective will be to make the customer purchase the product regularly La!guage a!# !o! (erbal "ommu! "at o! The language chosen should adhere to the culture of the country" .ikewise depending on the country there will be a different interpretation of non verbal communication Aesthet "s Toiletries decorated with chrysanthemum flowers would not be a success in rance because this flower is traditionally associated with funerals Dress a!# a''eara!"e The dress code of a country plays a vital role Fam ly relat o!sh 's

If we take third world countries the families are very close knit whereas in the west they prefer having a nuclear family and high divorce rates is common E#u"at o! a!# l tera"y .ow literacy levels will mean that visual methods of communication take precedence over textual ones Legal "o!s #erat o!s In some countries restrictions apply to the use of non native models and actors" This means that advertising has to be shot again for specific countries Me# a "o!s #erat o!s The 64 is a media rich country which offers a great variety of choice to the advertiser" In other countries not all media are available Tele( s o! Before looking at television as an advertising option the market needs to ask, how extensive is television ownership? In the 64, BC> of the households have a television" In India by comparison television penetration to individual households is very low DE)IGNING THE INTERNATIONAL MI1 Trade and professional 0ournals Consumer media Direct mail Trade fairs 3ersonal selling BDB Telemarketing *ales promotion 3ublic relations

INTERNATIONAL LOGI)TI*)
Any company should remember its basic distribution and logistics strategy is constrained by the distribution cost structure which can be represented as follows D ; T<2<I<O<$<) 5here D is the total distribution cost T is the total transport cost 5 is the warehousing cost I is the inventory cost / is the order processing and documentation cost 3 is the packaging cost * is e+ual to total cost of lost sales for not meeting the set standards

*HANNEL DE)IGN AND E0AL/ATION *ha!!el stru"ture

The series of trading intermediaries used to transfer title and physical possession from the manufacturer to the end user is known as the trading channel" The following points need to be kept in mind ,enerally producers wish to produce a very narrow variety of goods and in bulk -nd users on the other hand prefer to buy variety of goods and in small +uantities A further consideration is the cost of handling and servicing an order compared to the margin available" The small order tends to be unprofitable *o!sumer tra# !g "ha!!els This generally re+uires a variety of gods in small +uantities ,us !ess tra# !g "ha!!els This channel basically re+uires a narrow variety of goods from specialist suppliers in large +uantities

Des g! a!# e(aluat o! *ha!!el #es g! w ll be affe"te# by the follow !g fa"tors Buying behavior and culture 3roduct features Competition and competitive advantage Company ob0ectives in the market 8ode of entry D ffere!t "ha!!els for # ffere!t 'ro#u"ts resh flowers from -ngland to India will re+uire a fast channels as flowers are more perishable and cannot be kept fresh for a long period of time ,uy !g beha( or a!# "ulture Th s affe"ts the follow !g The end user preference as to where to buy, fre+uency of purchase and services re+uired The services that the intermediary expects and is capable of providing and their purchasing patterns $ro#u"t features

The nature of the product sold will affect the choice of channel members in a particular country" 3erishable goods need short +uick turnover channel systems to retail their value" *ome goods re+uire presales surveys, advice, installation, after sales service, maintenance and local spares and accessory availability $RO,LEM) IN $H+)I*AL DI)TRI,/TION Tra!s'ort "osts It is higher in overseas markets due to the distance and in poor countries the +uality of infrastructure is low 2arehous !g 8ore sites might be needed in regional centers )to"k le(els It will be higher as the distances are longer from the manufacturer Or#er 'ro"ess !g This might re+uire the customers and ;AT documentation $a"kag !g *ome ad0ustments might be needed Fa lure "osts This includes lost sales due to lack of available time" Customers in some countries, as in, ,ermany are unforgiving if time and +uality specifications are not met TRAN)$ORT DO*/MENT) Bill of lading Airway bill Truck receipt 3ro forma invoice Insurance documents Documents re+uired by government departments or agencies

FINAN*ING

/verdrafts Advance against collections -xport factoring Invoice discounting Credit insurers -xport schemes orfeiting .easing

INTERNATIONAL MARKETING OF )ER0I*E)

*HARA*TERI)TI*) OF THE )ER0I*E IND/)TR+ I!ta!g b l ty 6nlike goods services cannot be seen, touched or felt before they are purchased" This makes sampling difficult" It is also difficult to 0udge the +uality and value in advance" Apart from this it is not possible to have a patent or copyright" This makes service a very competitive industry" -ven if the customer gives a positive opinion, the potential customer may still be hesitant to try the service )trategy The service company has to focus on the benefits" They can use celebrities as brand ambassadors to promote the product" The focus should be on increasing and thereafter maintaining its reputation" 5ord of mouth reference is a very powerful tool" The service provider should try to bring out some innovation in the product, as in, .isterine mouthwash" It came out with the blue color because it stands for depth and stability" Blue is considered good for the body and the mind and has a relaxing effect on people" Blue also symboli(es heaven" 9ellow stands for dishonesty and cowardice" In the case of a beauty parlor, the customer will look at the d7cor" In the case of a doctor, the customer will go through references and also look at various certificates, the doctor has displayed in his clinic" This gives the patient lot of psychological confidence" In the case of a lawyer, he will go by the number of cases the lawyer has won in the court

I!se'arab l ty

In the case of manufactured goods, production takes place in the production unitA thereafter the goods are kept in inventory and transported to the distribution outlet, from where the consumers pick them up for consumption" In the case of service, it re+uires the presence of the performer or producer as the case may be" If a person goes for a haircut, the barber has to be present" If a patient is to be operated, the concerned doctor has to be present" .et us say that a doctor has to perform an open heart surgery on a specific patient" The doctor has to suddenly leave the place due to some urgent professional commitments" 2e is not able to perform the operation" There are two options available" The first one is the operation will not be performed" The second one is the operation can be performed by another doctor" -ven if we assume that the patient agrees with the second option the patient will lose complete confidence in the doctor and the hospital )trategy The service provider has to match the demand with supply" or this, he has to train additional service personnel to take charge of the situation during the peak demand period" 2owever, this is not possible in the case of all service providers Heteroge!e ty This means that services delivered vary in +uality" *ince people deliver most services, they are variable" If a customer travels by a particular airline and refers it to his friend, it is not necessary that his friend will also appreciate the service" -ven assuming that the same flight attendant or the air hostess has served the second customer, the service experience is bound to differ" .et us take another example of a library" A member goes on 8onday and issues some books" A few days later, he goes to return the books" There will be a huge difference in the behavior pattern of the librarian" There is no guaranty that the service will be the same )trategy The service company should ensure that there is uniformity in training" There should be no confusion in the behavior norms" The focus should be to automate as many services as possible" The service provider can also continuously monitor customer satisfaction by inviting suggestions and complaints" -ach and every process should have a blue print

$er shab l ty This means that services cannot be stored" If we take the case of an airline, even if some seats are not filled up, the plane has to fly" In the case of manufactured goods, unsold items can be put in inventory and be sold the next day" The challenge for marketers is to Etangibalise) the Eintangible) in order to increase the profitability )trategy !estaurants are now charging for reservations which is cancelled

Ow!ersh ' In the service industry the customer only has access to the service" 6nlike goods, there is no transfer of ownership )trategy The service provider has to explore all options and see if the customer can take away anything tangible as proof of the service rendered" *uppose a theatre hosts a play" The spectators who come for the play can be given a key chain or a diary as a freebie

)ER0I*E =/ALIT+
or any service provider to compete successfully it must develop +uality" The functional +uality is more important than the technical +uality 8anaging the perceived +uality of a service means that one has to match the expected service and the perceived service to each other so that customer satisfaction is achieved" To keep the gap between expected and perceived service minimal, two things are critical" The first point is that the service promised by the service provider should match the actual service" The second point is managers have to understand how the technical and functional +uality of a service is influenced and how the customers perceive these +uality dimensions In order to show the importance of +uality, 3arashuraman indicated that the consumer)s +uality perception is influenced by five distinct gaps occurring in organi(ations Ga' O!e Th s s the # ffere!"e betwee! "o!sumer e3'e"tat o!s a!# ma!ageme!t 'er"e't o!s of "o!sumer e3'e"tat o!s The reaso!s are Insufficient market research Inaccurate information from marketing research 3oorly interpreted information about expectations .ack of interaction between the management and customers :o market segmentation

:o relationship process Ga' Two Th s s the # ffere!"e betwee! ma!ageme!t 'er"e't o!s of "o!sumer e3'e"tat o!s a!# ser( "e >ual ty s'e" f "at o!s The reaso!s are 8istakes in planning .ack of customer driven service standards .ack of management commitment .ack of support from top management

Ga' Three Th s s the # ffere!"e betwee! ser( "e >ual ty s'e" f "at o!s a!# the ser( "e a"tually #el (ere# The reaso!s are Complicated specification Ineffective internal marketing ailure to match demand and capacity .ack of proper customer education Ga' Four Th s s the # ffere!"e betwee! ser( "e #el (ery a!# what s "ommu! "ate# about the ser( "e to "o!sumers The reaso!s are Bad reputation .ost customers :egative corporate image /ver promising in promotional campaigns ailure to manage customer expectations or failure to perform according to specifications Ga' F (e

Th s s the # ffere!"e betwee! the 'er"e (e# ser( "e a!# e3'e"te# ser( "e a!# ha''e!s be"ause of the aforesa # four ga's

*/)TOMER RELATION)HI$ MANAGEMENT

,ENEFIT) OF *RM Identify the most profitable customers 2ave greater understanding of customers !educe cost Design effective participation strategies 3rovide right ambience 3romote customer satisfaction and loyalty ,et ideas from customers for innovating or improving services !educe introductory cost for new offerings ,ENEFIT) TO */)TOMER) !eliable service Time saving by not searching for other providers 8inimi(e all kinds of cost as in psychic cost, energy cost Be assured of service recovery ,et liberal credit terms

THREE DRI0ER) OF )/**E))F/L *RM

*ustomer (alue Customer value is defined as the ratio between the customer)s perceived benefits and the resources used to obtain the benefits" 3erceived value is sub0ective" 8any customers visit 8cDonald)s to purchase standard inexpensive meals from franchise owners" The employees are systematically trained by the company to deliver the company)s four core standards, as in, +uality, service, cleanliness and value" Customers know what to expect and feel that they are getting value for the resources spent *ustomer sat sfa"t o! Customer satisfaction is the perception of individuals of the performance of a service in relation to their expectations" Customer satisfaction is a function of customer expectation" A customer whose experience falls below expectations is dissatisfied, whose experiences match expectations is satisfied and whose expectations are exceeded is delighted" Companies should study the levels of customer satisfaction and interpret properly" It has been proved that completely satisfied customers are more loyal to the company than 0ust satisfied customers" The vast ma0ority of companies that excel in satisfying customers rank the ability to react when something goes wrong as one of the most important factors in satisfying customers" To figure out how to satisfy a customer the company has to excel at listening to customers and interpreting what they are saying *ustomer rete!t o! The a#(a!tages of "ustomer rete!t o! are as follows .oyal customers buy more services .oyal customers are not price sensitive .oyal customers do not any attention to competitor)s advertising .oyal customers promote the service through word of mouth

8arketers who designate increasing customer retention rates as a strategic corporate goal must also recogni(e that all customers are not e+ual" *ophisticated marketers build selective relationships with customers based on where customers rank in terms of profitability, rather than merely strive to retain customers" 1ut to cite an example some stock brokers program their phone to recogni(e the phone numbers of high volume traders to ensure that these set of client)s get priority" Another example is that of a bank" Customers who do not use their credit cards so much or who 0ust maintain the minimum balance in their savings account should not have late payments or bounced che+ue charges waived off" *ome service organi(ations also fire customers" These are customers who do not give high volume business and will not purchase any of the company)s new products even if they are educated on that front

T?O?9o!es a!# 2?E?)essor a#(o"ate# us !g a "ustomer 'yram # to grou' "ustomers !to four t ers The 'lat !um t er includes heavy users who are not price sensitive and are willing to try out new products of the company The gol# t er consists of customers who are heavy users but not as profitable because they are more price sensitive than those in the higher tier, ask for more information and buy from several providers The ro! t er consists of customers whose spending volume and profitability do not merit special treatment from the company The lea# t er includes customers who actually cost the company money because they claim more attention than is merited by their spending, and spread negative word of mouth

$RO*E)) OF *RM
*/)TOMER RELATED IN$/T) Loyal sts They are completely satisfied customers" They are the repute buyers and happily subscribe to new offerings of the company" They recommend strongly and honestly the company)s products to others Defe"tors They are customers who shift their loyalty to other service companies because they are not happy with the existing company offerings" They are highly dissatisfied, dissatisfied or take a neutral stand on the satisfaction measurement scale" -ven satisfied customer defect when they find the offers from the competitor)s to be marginally better Mer"e!ar es

They do not have any loyalty" They may be completely satisfied with the company)s offerings but still will not stick with the company" They are mostly impulse buyersA they like to follow trends in fashion and are lovers) of change" It is not possible to establish a long term relationship with mercenaries Hostages They are captive customers" The customers continue with the company until they find a substantially better alternative C!8 is a useful tool for identifying the right customer groups and deciding the customer to 0ettison" Customer differentiation helps to keep the focus on valuable customers

*ustomer e3'e"tat o!s The expectations of the customers depend on various factors which include promises of the company, past experience, company image, word of mouth, etc" 5hen the company offerings exceed the customers) expectations they are delighted" 5hen they find the offerings to be on par with their expectations they are satisfied and if they find the offerings of the company below their expectation they are dissatisfied *ustomer 'er"e (e# (alue The value perception of the customers is influenced by several factors" *ome customers consider low prices as a value since they are price sensitive" They look for special discounts and distress sale" The other customers do not want to go through time and search costs" They are ready to pay an extra amount if the choices are more" These customers represent the creamy layers of society" The third sets of customers are rational customers" They compare the cost of the product with the benefit" They are loyal to the service provider as long as he delivers value *ustomer "om'la !ts The complaints should be handled very diplomatically" It could happen that the understanding of the customer is wrong" In such cases the service provider needs to exercise lot of care and caution I the way he handles the customer *ustomer #efe"t o!s If the rate of defections is more than the new addition of customers the company may find decreasing sales volume" 5hen the new addition and defections are e+ual in number the company may register stagnation in sales" 5hen the company gets more additions than the number of defections the sales curve may exhibit progressive movement" Identification of defectors, +ualifying them and finding the reasons for defection serve as key strategic information for arresting defection of customers

ORGANI5ATION RELATED IN$/T)

Orga! .at o!al resour"es The service provider needs to have a serious look at the financial resources, human resources, technology, management commitment, internal environment and culture and identify the weakness of the prevalent system *RM "osts Companies have to incur costs for customer ac+uisition and customer retention" They need to pursue different strategies and policies for ac+uisition of the new customers and for customer retention" The levels of C!8 are as follows, prospect, buyer, customer, client, supporter, advocate and partner

THE GOAL) OF *RM

To build and maintain mutually rewarding relationships with customers To provide +uality service To collect information periodically from consumers through consumer research To provide the highest possible value to customers than competitors

ORGANI5ATIONAL )+)TEM) FOR *RM

Fuality assurance process Customer centric business policies *tate of the art technology designed for the customer Continuously updating customer database !ightly +ualified and service oriented human resources !ecognition and rewards for employees 8echanism to respond to customer problems and grievances 3eriodic consumer research to understand and anticipate customer behavior

O$ERATIONALI5ATION

*ommu!al "oor# !at o! This involves creation of a centrali(ed repository of customer information" The first step is to put in all data relating to individual customers" The second step is to analy(e the data customer wise )er al "oor# !at o! This involves analy(ing the data so as to make the marketing efforts more effective )ymb ot " "oor# !at o! This stage identifies customers based on their loyalty level and tries to predict their relationship with the company in the near future

I!tegral "oor# !at o! In this stage each and every employee in the organi(ation is customer focused" They all share a common mission and thus help in making a service provider the most preferred one among customers Em'loyee or e!tat o! Companies use technology and human resources for the purpose of C!8" :either of these can operate in isolation" -mployees form a vital resource in rendering +ualitative services to customers" 8achines cannot show empathy to customers while human beings can" It has been proved in many cases that technology can never be a substitute for human resources" Companies should look for people who can deliver the desired expectation to the customer" The inducted employees should be provided with the right kind of training" -mployee empowerment is an essential input for C!8" It is a known fact that employees will deliver only when their needs are taken care of" Companies should ensure that at any given point of time the employee satisfaction index always moves upwards Em'loyee Relat o!sh ' Ma!ageme!t 6ERM7 It is a hard fact that ERM makes *RM 'oss ble" Companies throughout the world are reali(ing the need for relationship with employees" -very employee irrespective of his position in the organi(ation is a potential source of information" -!8 is capable of solving any problem related to human resources" A recent study conducted on retail stores showed that the service provider which had a high -mployee !elationship Index had a significantly higher customer loyalty index Eff " e!"y measureme!t a!# rewar# Companies can use the *ustomer )at sfa"t o! I!#e3 6*)I7 for measuring an employee)s performance" C*I is developed by surveying the customers about their service and satisfaction levels" The advantage of C*I is that it can be used periodically to assess the employee)s

performance" /rgani(ations do not have to wait till the end of the financial year to make a performance appraisal of an employee

THE INTERA*TION $RO*E))

-mployee customer interaction is the crux of C!8" -mployees are basically individuals with needs, wants, abilities, ego, etc" Customer participation is influenced by the pressure of needs and wants, egos, expectations, and other situational factors" Fuality 0udgment is the prerogative of the customers" In order to make this process effective the interaction points have to be identified

Roles of em'loyees This process begins by listing down the activities that are expected from each employee" Their interaction is not only confined to customers but also other employees" They may need the help of other employees to assist them in their work, give advice or work on a common problem Roles of "ustomers The customer benefit programs devised by the company are to be communicated effectively with all the rules and regulations" 3articipation has to come from both the employee as well as the customer" 5hen both the parties are clear in their understanding, know what to expect from each other, the relationship becomes strong Mome!ts of truth -mployees and customers are responsible for the moment of truth

THE */)TOMER RE)$ON)E

Customer response is the output of the C!8 process" Customer response to the C!8 depends on the experience of the customer, value analysis and future benefits" Based on these three variables the customer decides whether to continue his relationship with the company or not The "ustomer e3'er e!"e In recent years competitive pressures are mounting around customer experiences that create memories and lasting relationship" Due to this a !ew "o!"e't "alle# as the *ustomer E3'er e!"e Ma!ageme!t 6*EM7 s ga ! !g grou!#" C-8 emphasi(es a shift from technology

driven relationships to human driven experiences" It concentrates on employee interactions with customers and management of moments of truth 0alue a!alys s The value analysis of the relationship may include monetary benefit, social value and personal value" The performance of the company in providing satisfaction, service +uality and status against competitor)s offerings is considered by customers for the value analysis Future be!ef ts Customer)s expectation of future benefit influence future relations with the company" If customers expect more benefits in the future they prefer to continue or strengthen their relationship with the company" If they anticipate future regret, they prefer to discontinue or terminate the relationship

,ENEFIT) OF E *RM
The follow !g are the be!ef ts of E *RM Data and information can be recorded easily There is greater flexibility in classification of data !esponse time is fast DG hour service Customer identification and contact !educed complaints from customers 3otential problems can be identified 6ser friendly platform

T+$E) OF *RM
O'erat o!al *RM This is applied in the following three areas, as in, E!ter'r se Market !g Automat o! 6EMA7% )ales For"e Automat o! 6)FA7 a!# *ustomer )u''ort a!# )er( "es 6*))7 EMA provides information related to the business environment, competitors and trends in the industry" )FA covers areas such as consumer research, performance evaluation of sales personnel, etc" *)) covers customer complaints, customer re+uest and service recovery

A!alyt "al *RM In this the raw data is analy(ed and the intelligence gathered is transmitted to the respective mangers to support them in handling various situations *ollaborat (e *RM This system is used to facilitate customers to perform services on their own through a variety of communication and interactive channels

*RITERIA FOR )ELE*TING THE *RM )OFT2ARE

The C!8 package should be flexible It should be able to process any amount of data It should be user friendly The cost of the C!8 should not be more than the benefit It should be able to analy(e data in various forms and provide the desired output

*ONTROLLING INTERNATIONAL TRADE

Control is the process of ensuring that the results, process and business function confirms to established goals" All planning follows general lines ormulation of standards and goals 8easurement of actual performance against the standards Taking corrective measures if there is a deviation from the standards set 2hat sta!#ar#s shoul# be a#o'te#: Corporate ob0ectives 3rofit !eturn on capital Cash flow -arnings per share Market !g ob&e"t (es The follow !g are some e3am'les of sta!#ar#s for market !g a"t ( t es 8arket research <number and types of studies= *ales volume <by product line, +uarterly or yearly= 8arket share <by product, +uarter, year= 3roduct <+uality control standards= Distribution <market coverage, dealer support= 3ricing <levels, margins, and rigidity or flexibility=

*elling <standard of the sales force= How are sta!#ar#s establ she#: There are ma!y ways of establ sh !g sta!#ar#s 1ob specification for marketing personnel Treating each department as a cost centre and specifying the profit to be made Care must be taken to determine which cash flows are controllable -stablishing a feedback system to get a precise picture of the pulse of the market -nsuring that all departments meet at periodic intervals regularly to exchange information METHOD) OF E0AL/ATION AND *ONTROL */)TOMER $ER$)E*TI0E The time it takes for a firm to meet the needs of customers once they receive the order The +uality control systems 3erformance of the product *ervice backup INTERNAL ,/)INE)) $ER$)E*TI0E Identifying the business process which has the greatest impact on customer satisfaction such as +uality and employee skills Identifying distinctive competencies An internal system to help the managers evaluate performance of their subordinates FINAN*IAL $ER)$E*TI0E The flow of money should be properly controlled -stablishing a financial control system to find out whether the returns from marketing 0ustify the expenditure ,EN*HMARKING It has the follow !g a#(a!tages It helps in assessing a firm)s existing position and provides a basis for establishing standards of performance It focuses on improvement in key areas and sets targets which are challenging but achievable

The sharing of information can initiate the process of innovation It helps in pointing out potential threats It is a method which gives solutions to problems which may arise in the near future

*/)TOMER ANAL+)I) AND RETENTION 8any organi(ations do not know whether their customers and their potential are worth the trouble" 8any marketing programs are more concerned with replacing the percentage of customers that the company expects to lose every year rather than trying to stop them defecting in the first place The company must seriously ask itself whether it really knows its customers, what they want and whether they are likely to grow The company can take the help of a reputed market research agency to know where it stands amongst its competitors