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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After the recent announcement of CETA’s ratification, the Canadian federal and provincial governments are now heavily focusing on its implementation. Getting to this point with CETA took nearly 10 years and now suddenly Canada will enjoy free trade with Europe (a huge market of more than 500 million people in 28 countries).

Many Canadian companies are already there, as import duties in Europe have been more accessible than those in Asia, the Middle East or Latin America. Now, with a drop to 0% import duties for 98% of products and services, there is more incentive than ever to further invest.

It sounds great! So, let’s start selling.

Canadian exporters enjoy higher revenues, faster growth, pay higher wages and salaries, and achieve a greater return on investment. In addition, export insurance provides peace of mind and export financing with advantageous terms help with cash flow management.

Diversification has long been the popular advice to Canadian businesses: ‘Expand your market into the U.S. and invest in overseas market development to be less dependent on the Canadian market!’

You finally made the decision to move further ahead – either as a new exporter, or as an established export professional. What’s next? Where do you start and how do you continue?

While the development of new export markets is quite costly and very time consuming, and there is no guarantee of success, smaller firms from Europe are already selling to Canada, and many Canadian companies thrive in overseas markets. Check out the various industries already very successful in export markets.

To get started, this is a great opportunity to review and update your SWOT Analysis to ensure your company and key decision-makers have a solid understanding where your business currently stands, and what needs to be done to prepare for expansion.

This sounds like a pretty basic approach; every company knows where it stands, so why do it again? Here is a good reason:

Nobody is waiting for you – and the rules are not the same as in your home market.

You must create a different SWOT analysis for your export markets. It is very important to undertake a very thorough and detailed approach, including a comprehensive competition review!

You need to understand your key differentiators in detail, and the reasons why someone should buy from you. What’s in it for your customers? And can you make money after paying for all the extra costs of exporting? Is your local partner competitive over the next two to five years within your pricing structure?

Diversification also means expanding beyond U.S. markets

Yes, the U.S. is very close, and many companies already sell to that market, however, by limiting your international sales to that one region are you realizing your full export potential? Many smaller and medium-sized companies do not have a solid plan, and often sell to the U.S. to take advantage of a lower Canadian dollar. However, as soon as the exchange rate moves towards par, sales and profitability decline, and you can’t pivot easily to overseas markets because you need to make more sales today.

On top of that there are obvious political changes to consider, not least of which are growing protectionism and the renegotiation of NAFTA.

If one thing is certain it’s that here is no longer any guaranty that the status quo will remain.

Keep in mind that most exports of manufactured goods into the U.S. can be replaced by local production “Made in USA” products as soon if tariffs come into play and the currency fluctuates again.

Despite these uncertainties, there is no call to abandon U.S. markets as export destinations. Analyze your successes and come up with a strategic marketing plan to sell even more successfully in the U.S. market. In most cases, your ROI in America will be higher than in Canada and overseas (very strong US $, less cost for transport and sales channel).

Work with established regional distributors and/or agents to open more doors at Original Equipment Manufacturers (OEMs). You’ll need a competent U.S. sales manager and, ideally, some local boots on the ground. Often, your continued success in the U.S. will come down to pure determination and maintaining a competitive edge. In theory, we all know that the U.S. market is about tenfold the size of the Canadian market, so even if you enjoy the same sales in the U.S. as in Canada, you are way ahead of the game, and there is potential for so much more.

However, a considerable amount of profits generated in USA should be invested into developing European and other overseas markets. Wise exporters continuously work on new markets when times are good and do not wait until it is too late.

How do I find all the information I need?

Internet research, directories, and members of associations are all helpful. Ideally you will work with a local expert to ensure you have covered it all! Walk the industry leading trade shows, and/or participate with our own booth. There is excellent government funding available, and you can count on your local trade commissioner.

In most cases, niche products or niche solutions are easier to sell but it all depends on your product and how many competitors are already established in your target market.

Decide on two to four markets that have established free trade agreements with Canada (such as Europe, Columbia, Chile, Peru, South Korea, Australia), and some countries in the Middle East and Asia that offer low market entry barriers. Excessive import duties often do not leave you and your partners with any reasonable margin to do business. Many companies put a lot of effort into promising markets without doing their detailed homework about duties, local taxes and ROI.

Other regions with potential include Brazil, China, India, Indonesia, the Philippines and Russia. These countries have a high population and a growing middle class, however they can be extremely resource intensive to develop. You must work with a highly competent, financially strong and well-connected partner. Unless you have a product or technology that has incredibly high demand, business in these markets will be to continue to be challenging. In most cases, joint ventures and local production are key to success for manufactured goods and government business.

Another crucial factor: you must meet local approvals and regulations!

Ensuring you have a full understanding of all standards and certifications required to do business in a foreign market is crucial. You will need to do thorough research before assessing if trading in one of these regions is feasible. Fortunately, there is government funding available (up to 50% of research costs), if your business qualifies. Here are two funding opportunities: Export Market Access in Ontario, as well as CanExport on a federal level offer up to $ 5,000 each for international market research. After the initial research, the best approach is to work with a local expert who is interested in buying and distributing your products.

What does this mean for Canadian companies?

Come up with a comprehensive export plan, work with government experts, apply for funding, work the plan and do not give up. Successful international market entry takes time. However, if you do not become serious about exporting now, you risk missing out on opportunities that may not be there tomorrow.

The post Why exporters should diversify beyond U.S. markets – and how to do it right appeared first on Trade Ready.

In a highly competitive economy, no company can afford to be operating below its potential. This goal of gap analysis is to identify the difference between the way in which a company’s inputs and resources are currently allocated, and the optimal allocation of those inputs and resources. In doing so, gap analysis can provide insight into areas where there is room for improvement.

Gap analysis naturally flows from benchmarking. Once a company understands the level of performance that is general in its industry, it can compare that to its own performance. Such analysis can be applied to the internal organization (and the deployment of human resources), business direction (strategy), internal processes, and the use of technology (especially information technology).

Through gap analysis, a company can determine what additional investment of time, money and human resources it needs to make to achieve a particular outcome.

To take an example, if a company notices through benchmarking that most of the companies in the industry are now using EDI, it can use systematic gap analysis to determine what it would take to move its own operations from a paper based to and electronic format.

Gap analysis is useful in new product development. A company with established products may find that consumer needs and preferences are changing. As the gap between consumer expectations and the company’s products opens up, the company can use gap analysis to help in the development process.

It can cost what it would take to bridge the gap between existing and new product features, determine the gap between existing sales and expanded sales of the redesigned offering, and test the gaps between current profitability and potential profitability of the new products.

In terms of gap analysis as a planning tool, there are four areas in particular where it is applied.

Usage gap

This is the gap between the total potential in a market and the actual current usage by the consumers in that market. It is difficult to estimate total market potential, including all segments covered by all competitive brands. It is usually done by determining maximum potential individual usage, and extrapolating this by the maximum number of potential consumers, though this depends to a larger degree on judgment rather than strict scientific analysis.

The maximum number of consumers available will usually be determined by market research, but it may sometimes be calculated from demographic data or government statistics. The maximum potential individual usage, or at least the maximum attainable average usage, can be derived from market research. The existing usage by consumers can be derived from panel-based market research such as that undertaken by The Nielsen Company (formerly A.C. Nielsen).

Most marketers accept the ‘existing’ market size, projected over the timescale of their forecast, as the boundary for their expansion plans. Although this is often the most realistic assumption, it may sometimes impose an unnecessary limit. For example, the original market for computers or video-recorders was limited to the professional users who could afford the high initial prices involved. It was only after some time that the technology evolved sufficiently to penetrate the mass market.

The usage gap is critical for brand leaders who may already hold a significant share of the existing market. Their best strategy is to expand the size of the total market rather than to try to get a few more points in the existing market. Smaller players, however, will generally be limited to finding profitable niches where they can extend their offerings.

Product gap

The product gap represents that part of the market that a company is excluded from because of the characteristics of its existing products or services. This may be because the market is segmented and the organization does not have offerings in some segments, or it may be because the positioning of its offering effectively excludes it from addressing some potential consumers because others are doing a better job of serving them.

Some segmentation may be the result of deliberate choice on the part of a company that has set priorities for what it wants to focus on. In other cases, it has come about by default and the product gap analysis can be used to improve its positioning in the market.

Competitive gap

There is also a gap resulting from the competitive performance. This competitive gap is represented by the difference between the company’s performance and the share of business achieved by similar products, sold in the same market segment, and with similar distribution patterns. The competitive gap represents the effects of factors such as price and promotion.

Market gaps

There is another perspective that takes the ”product gap“ to its logical conclusion by looking for gaps in the “market.” These are basically market segments that have not been identified or are not served by anyone. Identifying such gaps may open up entirely new opportunities for product and service development, regardless of what a company is currently doing.

The post Want to find new ways to improve your business? Try using gap analysis appeared first on Trade Ready.

Therefore, when a company is considering moving into international trade or expanding its international business activities, it should go through a process of careful, market-oriented strategic planning.

Strategic planning is a method of determining a company’s business objectives for the coming years and how these objectives will be met.

The strategy should include decisions about production and operations, finance, human-resource management, marketing processes and other business issues.

The aim is to ensure that the company matches its organizational objectives to changing market opportunities.

Strategic-planning methods

There are a variety of strategic-planning models, and the one used by a company will depend on its leadership style, company culture, size and previous planning experience. Strategic planning models include the following:

1. Goals-based

This is the most common type of strategic-planning model used. It focuses on the organization’s mission, goals to work towards, strategies to achieve the goals and action plans.

2. Issue-based

This type of strategic planning starts by examining issues facing the company and then develops strategies to address the issues and action plans.

3. Organic

This type of strategic planning is based on the company vision and values and develops strategic plans to achieve the vision. Strategic plans can be developed for as little as one year in the future and up to five to ten years.

One of the first steps in strategic planning is performing a SWOT analysis. SWOT analysis is a technique that was first developed in the 1960s.

It requires companies to identify the Strengths, Weaknesses, Opportunities and Threats involved with a market, organization or event.

A SWOT analysis helps a company judge the circumstances around a potential business situation.

Company decision makers engage in a brainstorming session and list strengths, weaknesses, opportunities and threats relating to the business decision that must be made.

The strengths and weaknesses should be internal to the company, and the opportunities and threats should be external.

In the case of a company thinking about moving into a new international venture, a SWOT analysis might look something like this:

Strengths

• Unique product
• Strong brand-name recognition in the domestic market
• Capacity and financial resources to expand production

Weaknesses

• No experience in international trade
• No patent protection
• Product is not well known outside the domestic market

Threats

• New competitor is offering a very similar product at a lower price
• Possibility of competitor moving into exports before we do

Opportunities

• Offers from two distributors to partner with our company
• Identified need for our product in at least two international markets
• High demand in the domestic market
• Contacts established with distributors in two potential markets

The decision makers then work through the list and try to identify ways in which strengths and opportunities can be maximized and weaknesses and threats can be minimized.

This activity will suggest business decisions and actions that must be taken. It will also identify the information needed to make a decision.

Using international trade research to help strategic planning

When gathered and analyzed correctly, international trade research will increase the chances that a business decision will be the correct one, and thus increase the possibility of successful trading.

Research can help identify unstable markets that are likely to be unprofitable, cultural or financial issues that might make a product unlikely to sell in what seems to be a promising market, or a market that has not yet been exploited.

It is important to plan research into international markets carefully so that the most relevant and current information is obtained. It is also essential to remember that research cannot be used to make accurate predictions, only as an aid for decision making.

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