As an example, Singapore and Malaysia are bordering countries and members of ASEAN, but very different in social, legal, economic, political and technology contexts. Simply put, the markets are unified under the ASEAN framework, but highly fragmented and unique, and as such each market needs different entry and development treatment.

Competition should be reviewed and assessed during the trade readiness stage.

Price decisions must be made based on factual market intelligence and a logical thought process which takes into account customer demand (price elasticity), total addressable market, cost function, logistics, and competitors.

A SWOT analysis (figure 1) should be completed, keeping in mind that you will most likely be facing local and imported brands. Without exceptions all competitors and alternatives must be reviewed and analyzed.

High-end elite and luxury brands command a price premium in most global markets. However, as a new entrant you may not be able to leverage your home market brand equity. In that case, you will need to build brand equity to achieve that premium price.

There are 4 stages to reaching that premium price level:

1. establishing brand awareness
2. building brand acceptance
3. attaining brand preference
4. achieving the “holy grail of branding”, brand insistence

All of this this takes time and investment.

There is a longer-term hierarchal approach to developing an international or overseas market. This approach begins with exporting your product to your new market – entering it for the first time. When the business builds traction and gains momentum, a local sales and marketing support office and inventory can be established.

Investing in local production assets eliminates value-detractor costs like shipping, handling fees, and duties (depending on relevant trade agreements). Moreover, local production could serve as an export platform to neighbouring countries as you expand geographically to continue growth.

In this hierarchical approach a company may accept lower profits to fast-track the initial stages, with the intention of maximizing profitability during the growth stage after investing in local production. This is often referred to as the “market entry fee”.

Not many companies will consider foreign direct investment (FDI) without first establishing a sustainable and scalable business model.

Again, it’s important to be patient. Establishing a foundation for a business could take three to five years.

5 pricing strategies to consider

Price positioning options should be evaluated, and a pricing strategy selected during the trade readiness – situational analysis and strategic planning stage.

There are many different price positioning options available, depending on:

• route to customers
• layers of distribution – retail or wholesale
• business-to-business (B2B)
• business-to-consumers (B2C)
• type or nature of the business

As an example, if you’re selling through a distribution network, the business model is business-to-business-to-consumer (B2B2C).

Multiple layers of distribution can be effective at reaching large or remote target customer segments. However, additional layers increase consumer cost, and it’s crucial to be mindful of this when selecting a pricing strategy.

There are many pricing and price configuration strategies to consider, and a business needs to decide the most effective strategy to achieve financial and non-financial objectives for each market and segment.

Selling directly to consumers or through a distribution network will also influence the price strategy choice. Most businesses entering the Southeast Asia or Indo-pacific region will sell through a distribution or channel partner network.

The most popular and relevant pricing strategies are premium pricing, penetration pricing, competitive pricing, cost-plus pricing, and value-based pricing.

1. Premium pricing

Premium pricing sets a high price for products or services reflecting superior quality, customer experience, and exclusivity. This strategy works well in the luxury goods segment where products are highly differentiated and unique with strong consumer brand affinity.

However, in most emerging and developing markets there are three distinct customer segments – premium, mid-level, and economy (figure 2).

The premium segment may be profitable, but it may also be the smallest customer segment with limited growth potential. Product and price positioning must be organizationally aligned with target markets and customer segments.

2. Penetration pricing

Penetration pricing is a strategy that sets the price lower than marketplace pricing to more quickly gain market-share. The idea is that lower prices will attract a larger number of customers. The profitability focus is higher-volume lower margin percentage, but higher margin dollars based on volume.

As an example – $1m sales at 50% GM = $500k margin dollars. $3m sales at 40% GM = $1.2m margin dollars. Ten percentage points lower, but 140% or $700k additional margin dollars.

The premise is as market share is built and brand equity develops and customer loyalty is gained, you can gradually increase your prices.

This strategy can be highly effective at penetrating intensely competitive markets where lowest price prevails and is the determining factor in deciding brands and suppliers.

However, it will be extremely challenging at any time to increase prices without alienating customers, especially if you’re the only one increasing. On top of that, competition will retaliate and it becomes a race to the bottom, and a race that’s unwinnable – in most cases local manufacturers will have lower cost structures.

3. Competitive pricing

Competitive pricing is a strategy that prices products similar to brands already available in the market. You should also review products that are dissimilar that could be used as an alternative.

As an example, a nut and bolt and a rivet, both are mechanical fasteners similar in functionality but different. The rivet might be more expensive but it’s faster to install and offers an overall consumer cost-savings (the value proposition).

Alternatively, you could price your products slightly lower as you would with a penetration pricing strategy, but Southeast Asia or Indo-pacific markets are intensely competitive, and competitors will respond aggressively.

4. Cost-plus pricing

In my opinion, this is the most overused and simplistic method to establish pricing. This strategy factors in all contributing fixed and variable costs to establish a selling price to distribution with a fixed margin.

In most cases incoterms are FCA (free carrier), channel partners and customers arrange to have loaded containers collected from the manufacturer, trucked to rail yard, railed to port, and port to export destination.

The strategy is simple and generally applies to all products across all regions, markets and segments. The downside to this strategy is that it doesn’t take the consumer or market price into consideration. The strategy also excludes regard for channel partner margin, and if your product line is not profitable and salable, channel partners will soon lose interest.

5. Value-based pricing

Value-based pricing is grounded on target customers’ perception of value. I have found this strategy to be most effective in determining the right price to drive revenues and maximize profitability for companies and their channel partners.

The price point is determined using a demand curve that illustrates the relationship between demand at different price points. Corelate that data with VOC (voice of customer) to determine the threshold of affordability – in essence what the target customers are willing to pay for the products or services, considering the added value being delivered.

Figure 3 compares cost-plus and value-based pricing strategies.

The difference is determining the market price first as the threshold of affordability, then working backwards. Subtract distribution margin,  duties (if applicable) and logistics cost. That will determine the distribution selling price or distribution cost of goods.

The difference in profit between the two is cost-plus delivers 50% margin, and value-based 42%. As explained in the penetrating pricing section, you may need to accept a lower margin to increase demand.

The goal when determining a pricing strategy is to rapidly develop market share and drive profitable revenues for the business and any channel partners while considering the threshold of market and customer affordability.

As mentioned, this might take some experimenting before you get it right, that’s to be expected. Take the time to get it right, pay close attention to competitors and fully understand their key differentiators and value propositions.

Let research and data and a logical thought process drive your product and pricing decisions.

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When mitigating the impacts of increasing tariffs, organizations need to consider 4 important levers – procurement costs, supply chains, customers, and competitors.

Lever 1: Procurement Costs

For larger organizations such as Ford or GM with products integrating parts such as microchips, drives, and other critical components, tariffed materials may account for up to 10-15% of costs.

For small players, like metal stamping, material costs are unlikely to be significantly affected by increasing tariffs. In this case, suppliers will likely be domestic and they in turn are unlikely to face tariffs.

Organizations should:

• Ensure sources of expertise are accessed during the evaluation process, including engineering, manufacturing, legal, regulatory and commercial teams
• Evaluate the impact of an increase in the cost of raw materials throughout the production chain – for example, the impact of steel and aluminum tariffs from China could increase raw material costs by 2 to 5%
• Undertake risk analysis to identify the cost impact of different tariff scenarios
• Focus on total cost of ownership, not just prices to understand the actual impact of tariffs relative to costs

Lever 2: Supply Chains

With few alternatives, or with significantly limited capacity, we would expect costs to rise even more severely throughout the supply chain than would be indicated by the tariffs alone. Margins should be locked in by seeking long-term contracts with suppliers and buyers, so that uncertainty is reduced.

Supply chains that involve sourcing from providers whose goods and materials may be subject to increasing tariffs will need to evaluate which suppliers will pass on the tariff load and, if so, explore alternatives.

Organizations should:

• Deepen relationships with existing suppliers to identify joint solutions to mitigate the impact of tariffs
• Switch suppliers – identify the long-term supply chain risks, including the impact a supply shortage would have on manufacturing and operational costs
• Make engineering changes so that non-tariffed substitutes can be used
• Negotiate with suppliers to share in the tariff burdens
• Work with existing suppliers to source from factories they may operate in non-tariffed countries
• Insource – look for existing opportunities to produce items that were previously outsourced
• Seek product reclassification to place items outside the tariff bucket (e.g., specialty steel may also qualify for tariff exemptions so that in such cases, prices would not be impacted)

Lever 3: Customers

When evaluating if and how much of the cost increases can be passed along to customers, it is critical to consider how responses to price will vary. This depends on the relative value they ascribe to your products and their ability to source elsewhere.

Organizations should try to predict customer behaviour:

• If your product is key, or it cannot be easily substituted, or switching represents a significant risk, then customers will likely be less price sensitive (e.g., where switching products can be difficult or illegal)
• Conversely, if there are readily available substitutes, or customer margins are tight, or you sell large volumes that are not critical to their own activities, expect price sensitivity

Lever 4: Competitors

While competitors will also face the same tariff pressures, they may be impacted differently. Their responses may differ depending on their own cost structures, objectives, supply chain options, target markets and customers, geographic considerations, regulatory implications and strategies.

Organizations should:

• Look at previous competitor actions to determine which markets or customers are viewed as critical

Also, competitors may try to minimize price increases in critical markets while countering the impact on their bottom line by increasing prices more in other markets.

Organizations should:

• Understand key markets and develop pricing strategies based on which markets are critical and prepared to defend them given competitors’ objectives and strategies

Which lever(s) will work best for your business?

Overall, it’s important for businesses to make decisions that provide them with flexibility, given the continuing uncertainties with respect to tariff policies. Procurement organizations must ensure that mechanisms are in place to monitor changing developments, disseminate that information to key stakeholders, assess the potential impact of changing tariff policies, and use the four levers to mitigate the impact.

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While it makes for a captivating movie and sounds great in theory, this is rarely the case when it comes to growing your business.

When planning your company’s international expansion, it may seem tempting to copy a successful approach you’ve already used in a different region. But the reality is that such a strategy fails more often than it succeeds.

Instead, businesses must do the proper research to be prepared to reach customers where they are, and in the way they prefer, with messaging and benefits that appeal directly to their wants and needs.

Since you can’t expect customers to simply come to you as soon as you enter a new market, here are some marketing tactics you can use to create a customized experience to earn their business – as well as their loyalty and respect.

1. Pricing is more than a currency conversion

When it comes to price, it can be easy to think you can just convert the price of your product from the existing currency to that of your new target market and call it a day. While converting prices to local currency is helpful, it should be just one part of your overall pricing strategy.

Take a look at how potential competitors price their products, and how much customers are willing to spend.

If other companies are offering similar products at lower costs, or there aren’t enough customers capable of purchasing at your price point, you may need to rethink your strategy.

This is particularly true if competitors have already been in the market for a while and have built up brand loyalty.

On the other hand, you need to know what level of profit will make your business sustainable there. How will distribution costs, marketing costs, and your overall business strategy affect what you can price your product or service at?

It can also be difficult to set a price if you are entering an unproven or niche market and will have to pay a great deal up front to establish your business there.

First, find out what your potential customers are willing to pay, and if there is a big enough market to support your business.  Then, see what kind of price will make it a profitable market for your business. If those numbers are too far apart, it will lead to significant problems down the road.

2. Find out if translation is the key to market entry

Even as English is used increasingly worldwide, translating into other major languages like Mandarin, Arabic, Spanish or French is an important way to reach more customers in markets where those are the predominate languages.

Many countries, however, have several common languages in use. Singapore, for example, has four main languages: English, Malay, Mandarin and Tamil, and 70% of the population speaks at least one language other than English. Even though the majority of people in Singapore speak English, limiting advertising and selling to one language could result in lost opportunities.

In markets like Singapore where several languages are used, assess the potential market size of customers speaking another language. You will also need to research the cost of translation, and what degree of competition there is for your products or services in that demographic.

If there is a sizable group that speaks a language few companies have catered to, speaking their language could be a great way to stand out and win customer loyalty.

Can your company afford to translate into multiple or several languages? If it can, will the return on that investment be sufficient to make it worthwhile? If the answer to both is yes, translation could be your key to success.

3. Find the right mix to maximize your marketing spend

Deciding on which methods to focus your advertising budget can be stressful.

To make the best possible decision, you need to know where your potential customers place their trust, the reach of various media, the size of the market for your product or service, and the cost of various advertising methods. If it’s inexpensive to reach a lot of people through one method, but it may only have a minimal impact, is that as advantageous as reaching a smaller group who are far more likely to act upon your advertising?

A digital-heavy strategy with banner ads, social media marketing and e-mail promotions may be ideal for a company in one country, while a mix of radio and print ads could be equally good for another. Never assume what’s worked before in one country will work again elsewhere. Take the time to research the market to determine what type of communication people are most receptive to, how many people could be influenced, and what it would cost before making a final decision.

Some companies may even consider counting on word of mouth to spread the word at low cost, or a viral marketing strategy that could have a huge impact disproportionate to the budget. Companies with bigger budgets may also consider more costly options such as product placement or celebrity sponsorships unavailable to most businesses.

While the best strategy is often a mix of various approaches, you need to know what will work best for your business.

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Decoding ASEAN markets from Canada can be a daunting task.

I remember my first trip travelling from Vancouver, BC over the Pacific Ocean and reading a stack of “culture shock” novels to prepare myself for my new overseas selling adventure. I remember reading and thinking “My goodness, it can’t be that different from our Canadian culture,” but how accurate these novels turned out to be.

Globalization has made our world smaller and more accessible from all points, but ASEAN markets have many differences. Understanding them and recognizing the need to adapt to overseas markets is vital to gaining access and developing a successful and sustainable ASEAN business.

1. ASEAN is not a homogenous marketplace, your strategy must be market specific

Market analytics should be the driving force of your strategy to ensure that it is driven by a comprehensive understanding of market complexities. Exporting companies must scrutinize relevant social and cultural, legal, economic, political and technological data, along with customer, channel prospect and competitor data, to harvest meaningful information. The information harvested must define the best growth opportunities by economic value and likelihood of success, based on facts and logic rather than assumptions and emotions.

Strategy then becomes about choice, deciding where to compete, how to compete and most importantly, how to win. A correctly executed strategy must connect all the functional and fragmented parts of the business into a coherent and unified approach. Moreover, the strategy must accurately align business resources, capabilities and capacity with target markets, verticals and customers.

If the business decision is to enter and develop multiple ASEAN markets concurrently, then the right analytics for each market must be collected.

ASEAN markets may share the single market concept and motto of “One Vision, One Identity, One Community”, but the markets are diverse. Both value perceptions and buying behaviors differ significantly throughout the region.

As an example, Singapore and Malaysia are bordering nations but must be seen in very different social, cultural, legal, economic, political and technological contexts. Companies entering ASEAN markets need to be cognizant of these intraregional differences and distinctions, as well as how they influence perceptions and shape behaviors about exporting companies, their products and partnerships.

2. Correct product and price positioning

A multi-national corporation (MNC) which manufactures batteries in the FMCG (fast moving consumer goods) segment launched into the ASEAN market, proclaiming that “our batteries last five times longer and are only three times more expensive compared to our local competitors’- we will gain millions of new customers”.

The launch failed because of misaligned product and price positioning. The company misinterpreted value perceptions, and failed to recognize that being three times more expensive was beyond the threshold of customer affordability.

Analyzing, understanding and targeting addressable market segments and customer categories is crucial to product and price positioning. Most ASEAN markets have three-tier customer categories:

1. Premium buyers – Discerning buyers who accept only top-tier brands, offering the highest quality in products with the most features, along with priority services. They are willing to pay the highest level price premium, for example Emirates Airlines first class travel.
2. Value-added buyers – Buyers who expect high quality products and services that meet specific needs. They normally accept products with less features and are willing to pay a price premium based on relevant perceived value, for example business class or economy-plus air travel.
3. Price buyers – Buyers who seek products that are of adequate quality at the best possible price, and have less concern about quality, service levels and consistency, for example economy-class or budget airlines no frills travel.

The best growth and profit opportunity may be to offer existing products or customize and differentiate products or services in the value-added buyer category. Customers in the price-buyer category are burrowing up because of globalization and better choices being made available. Conversely, customers in the premium-buyer category are beginning to seek alternatives that still meet overall needs but offer less features at a lower price-point.

Companies entering ASEAN markets must align features that matter with customers that matter. With respect to price positioning, is it about profit percentage or contributing profit dollars? This is a subjective question and depends on the exporting company’s business culture, growth objectives and longer-term ambitions. As an example, is 50% profit on a $2M business more appealing than 41% profit on a $5M business?

Exporting is normally a first step, to test the waters and begin the business building and market development process. Once a market is developed sufficiently, investment in manufacturing assets often follows. As such, companies frequently accept lower profitability during the entry and development stage with the endgame of optimizing profitability and customer service post-localized manufacturing investment.

My view? It’s about immediately being competitive and quickly gaining market-share while maximizing profitability for both company and channel partners.

I believe price premiums are achievable and sustainable in highly competitive markets. However, value-added features or services must be relevant, meaningful, and priced within the threshold of affordability.

Rather than using a simple cost-plus pricing strategy, consider a market or value-based pricing strategy. Market-based pricing factors in similar competitors, product features, services and value propositions, while value-based pricing factors in relevant product and services features that differentiate and enable price premiums.

Either pricing model must provide sufficient profitability for channel partners considering logistics and import duties. This price becomes the Ex-Works or FOB export-price or channel partner cost-price for a specific market.

3. ASEAN markets are made up of people and relationships, not just products and price

The importance and value of relationships cannot be understated or underestimated. Relationships in ASEAN markets are founded on trust and confidence. Canadian companies are considered to be highly trustworthy within the ASEAN region and this established trust equity can often translate into brand, product and services preference and price premiums.

Building trust with partners or suppliers through customer-centric business conduct and ethical behavior is something that must be experienced and this takes time. Exporting companies must understand the ASEAN culture is to establish intimate affinitive relationships that build the business. Companies that try to take shortcuts and build their businesses on opportunistic sales before establishing relationships often fail to develop a strong, profitable and sustainable ASEAN business.

ASEAN markets offer significant growth opportunities, and with the right strategy that is correctly aligned with markets, channels and customers, Canadian companies can thrive in the ASEAN region. The core ASEAN markets – Philippines, Vietnam, Thailand, Malaysia, Indonesia and Singapore – are rapidly emerging as the global growth engine of the next decade. Emerging markets and globalization is here to stay.

A number of key ASEAN markets, such as Vietnam and the Philippines, are rapidly evolving as lower-cost manufacturing alternatives to China. These evolving markets offer significant new interregional customer opportunities due to rising incomes and urbanization. The ASEAN region’s total population is approximately 45.7% of China’s, but when comparing the top 10 cities of the ASEAN region and China, that number rises to approximately 62.1% of that of China.

Vietnam reported record FDI for 2015 and the country’s General Statistics Office reports 95% year over year (YOY) growth in the first half (H1) of 2016 ($3.839b to $7.5b). By comparison, this is second-place in the ASEAN region to the Philippines in attracting FDI, who reported 103% YOY growth in H1 2016 ($19.76b to $40.15b).

The post Three key considerations to help build your ASEAN entry and growth strategy appeared first on Trade Ready.

For entry strategies such as indirect exporting, in which entry costs are low, the level of competition is less important than when substantial financial investment is required. Companies should therefore research the competitive environment as carefully as possible when deciding on which strategy will best suit them and use this to develop a series of competitive landscape maps (CLMs).

They should also analyze the market entry strategies being used by others to determine hidden pitfalls and the methods most likely to succeed.

Create competitive landscape maps (CLM)

A CLM is a simple chart that indicates what is important to consumers in the chosen market. Companies should develop several CLMs: one that compares price and quality, one for other important product or service qualities, one for sales strategy and one for key product differences. On each chart, the company should indicate the position of each main competitor in the market. On analysis, this will indicate competitive gaps—these are the areas that a company can target to gain a competitive advantage.

For example, if a chart shows that most companies in the market provide basic bread products at low prices, a company entering the market with the same types of products will find the competition hard to compete with. The CLM will illustrate areas in which it can find a niche in the market, such as by offering specialist types of bread or by developing baked products with health benefits.

To develop competitive maps, companies need to use competitive intelligence. Competitive intelligence is developed by using publicly available sources to gain information about competitors and competition. It does not involve any underhand gathering of information. Companies will find that they can gather all the information they require from available sources if they conduct some intensive research.

Research for competitive intelligence

Companies can obtain information about a company’s strategic goals, its marketing strategies and its product and pricing strategies by commissioning a competitor analysis company to investigate the market. If a company is unwilling or unable to pay for this service, there are numerous resources a company can use to undertake its own research.

Explore company profiles

Companies can try finding information about companies in the market using directories such as Yahoo’s Business and Economy directory (dir.yahoo.com/business_and_economy). Hoover’s online is another exhaustive source of company information (www.hoovers.com). The information provided includes industry analysis and company information organized by country. Not all companies in specified regions are included, but major ones are. Company websites will often contain valuable information that can help researchers clarify product positioning and deduce strategic aims and objectives.

Browse news stories for competitive intelligence

Companies should read the news from their target market to gain an understanding of major industry initiatives. Online versions of newspapers and business journals are available for free from most countries in the world, and most of them written in English. A basic search using Google News will provide archived articles about industry and company news in a target market. Other useful sources are Business Wire (www.businesswire.com) and Reuters (www.reuters.com).

Employment advertisements are another useful source of information. The numbers of people being hired by a company and the job roles they are looking to fill will give researchers clues to future competitor activities.

Take advantage of industry activities and resources

To obtain a real understanding of the competitive environment in a foreign market, companies can attend trade shows, conferences and seminars. They can also contact their country’s embassy in the target markets and obtain information about their industry sector from the Trade Commissioners there.

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