Very often a company finds some enterprising distributors buying more than they
can sell in their own country and reshipping goods to another country to take ad-
vantage of price differences. Multinationals try to prevent gray markets by policing
the distributors, by raising their prices to lower-cost distributors, or by altering the
product characteristics or service warranties for different countries.
In the European Union, the gray market may disappear altogether with the tran-
sition to a single currency unit. The adoption of the single currency by 11 countries
will certainly reduce the amount of price differentiation. In 1998, a bottle of Gatorade,
for instance, cost 3.5 European currency units (ECU) in Germany but only about 0.9
in Spain. Once consumers recognize price differentiation by country, companies will
be forced to harmonize prices throughout the countries that have adopted the single
currency. Companies and marketers that offer the most innovative, specialized, or
necessary products or services will be least affected by price transparency. For instance,
Mail Boxes, Etc., which has 350 stores in Europe, believes that customers who need
to send faxes won’t refuse to do so because it costs more in Paris than in Italy.^31
The Internet will also reduce price differentiation between countries. When com-
panies sell their wares over the Internet, price will become transparent as customers
can easily find out how much products sell for in different countries. Take an on-line
training course, for instance. Whereas the price of a classroom-delivered day of train-
ing can vary significantly from the United States to France to Thailand, the price of
an on-line-delivered day of training would have to be similar.^32
Another global pricing challenge that has arisen in recent years is that countries
with overcapacity, cheap currencies, and the need to export aggressively have pushed
prices down and devalued their currencies. For multinational firms this poses chal-
lenges: Sluggish demand and reluctance to pay higher prices make selling in these
emerging markets difficult. Instead of lowering prices, and taking a loss, some multi-
nationals have found more lucrative and creative means of coping:^33
■ General Electric Company Rather than driving for larger market share, GE’s
power systems unit focused on winning a larger percentage of each customer’s
expenditures. The unit asked its top 100 customers what services were most
critical to them and how GE could provide or improve them. The answers
prompted the company to cut its response time for replacing old or damaged
parts from twelve weeks to six. It began advising customers on the nuances
of doing business in the diverse environments of Europe and Asia and began
providing the maintenance staff that customers needed for occasional equip-
ment upgrades. By adding value and helping customers reduce their costs and
become more efficient, GE was able to avoid a move to commodity pricing
and was actually able to generate bigger margins.
■ Praxair Inc. For Praxair, a Danbury, Connecticut, supplier of industrial gases,
the name of the game was decreasing costs faster than pricing falls. The Prax-
air purchasing team became every bit as important as sales and marketing.
Praxair formed global procurement teams that use information technology
to coordinate scattered local operations on purchases of telecom equipment
and services, freight fuel, and computer and office supplies. The goal is to
buy more from fewer suppliers to get the best possible volume pricing. Al-
though bottom-line results aren’t in yet, one of five such global teams aims
to reduce its network of suppliers from 1,200 to 300.
PLACE (DISTRIBUTION CHANNELS)
Too many U.S. manufacturers think their job is done once the product leaves the
factory. They should pay attention to how the product moves within the foreign
country. They should take a whole-channel view of the problem of distributing prod-
ucts to final users. Figure 6-4 shows the three major links between seller and ulti-
mate user. In the first link, seller’s international marketing headquarters, the export
department or international division makes decisions on channels and other mar-
keting-mix elements. The second link, channels between nations, gets the products to
chapter 12
Designing
Global Market
Offerings^385