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UNIVERSITY OF MUMBAI

2013-14
PROJECT REPORT
ON
PRICING STRATEGY OF NOKIA
SUBJECT
STRATEGIC MARKETING
BY
NAME OF STUDENT: GAURAV. J. MADYE
COLLEGE SEAT NO :- 15
MASTER IN COMMERCE
( SEMESTER-II )

K.M.AGRAWAL COLLEGE OF
ARTS & COMMERCE, KALYAN (W).

1
CERTIFICATE

K.M.AGRAWAL COLLEGE, KALYAN

THIS IS TO CERTIFY THAT MR. GAURAV. J. MADYE HAS


WORKED AND COMPLETED HIS PROJECT WORK FOR THE DEGREE OF
MASTER IN COMMERCE IN THE FACULTY OF COMMERCE IN THE
SUBJECT OF STRATEGIC MARKETING ON TITLE OF PROJECT
WORK TO BE WRITTEN PRICING STRATEGY OF NOKIA

UNDER MY SUPERVISION. IT IS HIS OWN WORK AND FACTS


REPORTED BY HIS PERSONAL FINDINGS AND
INVESTIGATIONS.

NAME & SIGNATURE OF

PROF. . SUJIT SINGH PROF.


(INTERNAL GUIDE) (EXTERNAL GUIDE)

PROF. ANITA MANNA


(PRINCIPAL)

2
DECLARATION

I, GAURAV. J. MADYE THE STUDENT OF K.M.AGRAWAL


COLLEGE OF M.COM (PART-1) HERE BY DECLARE THAT I
HAVE COMPLETED THIS PROJECT ON
IN THE PRICING STRATEGY OF NOKIA
FOR THE ACADEMIC YEAR 2013-14.
THE INFORMATION SUBMITTED IS TRUE AND
ORIGINAL TO THE BEST OF MY KNOWLEDGE.
I HERE BY FURTHER DECLARE THAT ALL
INFORMATION OF THIS DOCUMENT HAS BEEN OBTAINED
AND PRESENTED IN ACCORDANCE WITH ACEDAMIC RULES
AND ETHICAL CONDUCT.

COLLEGE SEAT NO. :- 15

YEAR:- 2013-14

DATE :-

PLACE :- KALYAN

NAME & SIGNATURE

(GAURAV. J. MADYE)

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ACKNOWLEDGEMENT

I EXPRESS MY GRATEFUL THANKS TO PROJECT GUIDE


PROF. SUJIT SINGH FOR HIS TIMELY GUDENCE AND HELP
RENDERED AT EVERY STAGE OF THE PROJECT WORK.

I EXPRESS SINCERE THANKS TO OUR PRINCIPLE PROF.


ANITA MANNA MADAM, WHO HAS GIVEN HER VALUABLE
MORAL SUPPORT, MOTIVATION, INSPIRATION, AND
EDUCATIONAL ATMOSPHERE IN THIS INSTITUTE FOR THE
SUCCESSFUL COMPETITION OF THE PROJECT WORK.

I ALSO WISH TO EXPRESS MY REGARDS TO THE


LIBRERIAN FOR HER CO-OPERATION IN PROVIDING ME WITH
NECESSARY REFERENCE MATERIALS.

I ALSO EXPRESS MY THANKS TO FACULTY MEMBERS


AND FOR CO-OPERATION AND HELP GIVEN IN COMPLETING
THIS PROJECT.

FURTHER THANKS TO MY PARENTS, MY FREINDS AND


MY FAMILY FOR THEIR UNLIMITED AND SUPPORT DURING MY
STUDY.

GAURAV. J. MADYE

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TABLE OF CONTENTS
TOPICS PAGES

INTRODUCTION .6

IMPORTANCE OF PRICING..8

FACTORS EFFECTING DEMAND ....11

SETTING PRICING POLICY12

PRICING INFLUENCES ON PRICING POLICY.. 18

NEW PRODUCT PRICING STRATEGIES .. 21

PRODUCT MIX PRICING STRATEGIES 24

PRICE ADJUSTMENT STRATEGIES 25

SETTING THE PRICE .... 27

FACTORES EFFECTING PRICING DECISION 28

INITIATING AND RESPONDING TO PRICE CHANGES ..30

Case Study Analysis on Pricing Strategy of NOKIA..32

NOKIA - MADE IN INDIA A DETAILED ANALYSIS..36

PRICING STRATEGY OF NOKIA.39

CONCLUSION..40

REFRENCES 41

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INTRODUCTION

Price is the one element of the marketing mix that produce revenue ; the
other element produce cost, prices are the easiest marketing mix element to
adjust ; product features, channels and even promotion take more time .price
also communicating to the market the companys intended value positioning
of its product or brand.

Narrowly, price is the amount of money charged for a product or


service.
Broadly, price is the sum of all the values that consumers
exchange for the benefits of having or using the product or service.
Dynamic Pricing: charging different prices depending on
individual customers and situations.

Today companies are wrestling with a number of difficult pricing tasks


How to respect to aggressive price cutters
How to price the same product when it goes through different
channels
How to price the same product in different countries
How to price on improved product while still selling the previous
version

Many companies do not handle pricing well. They make these common
mistakes; price is to cost-oriented ; price is not revised often enough to
capitalize on market changes; price is set independent of the rest of the
marketing mix rather than as an intrinsic element of marketing
positioning strategy; and price is not varied enough for different product
item ,market segmentation , distribution channels, and purchase
occasions.

Companies do their pricing in a variety of ways. In small companies,


price is often set by the boss. In larger companies, pricing is handling by
division and product line managers. Even here, top management sets
general objectives and policies and often approve the prices proposed by
lower level of management.
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PRICING-INTRODUCTION

Setting the right price is an important part of effective marketing. It is the


only part of the marketing mix that generates revenue (product, promotion
and place are all about marketing costs).

Price is also the marketing variable that can be changed most quickly,
perhaps in response to a competitor price change.

Put simply, price is the amount of money or goods for which a thing is
bought or sold.

The price of a product may be seen as a financial expression of the value of


that product.

For a consumer, price is the monetary expression of the value to be


enjoyed/benefits of purchasing a product, as compared with other available
items.

The concept of value can therefore be expressed as:

(Perceived) VALUE = (perceived) BENEFITS (perceived) COSTS

A customers motivation to purchase a product comes firstly from a need


and a want: e.g.

Need: "I need to eat

Want: I would like to go out for a meal tonight")

The second motivation comes from a perception of the value of a product in


satisfying that need/want (e.g. "I really fancy a McDonalds").

The perception of the value of a product varies from customer to customer,


because perceptions of benefits and costs vary.

Perceived benefits are often largely dependent on personal taste (e.g. spicy
versus sweet, or green versus blue). In order to obtain the maximum possible
value from the available market, businesses try to segment the market

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that is to divide up the market into groups of consumers whose preferences
are broadly similar and to adapt their products to attract these customers.

In general, a products perceived value may be increased in one of two ways


either by:

(1) Increasing the benefits that the product will deliver, or,

(2) Reducing the cost.

For consumers, the PRICE of a product is the most obvious indicator of cost
- hence the need to get product pricing right.

IMPORTANCE OF PRICING
When marketers talk about what they do as part of their responsibilities for
marketing products, the tasks associated with setting price are often not at
the top of the list. Marketers are much more likely to discuss their activities
related to promotion, product development, market research and other tasks
that are viewed as the more interesting and exciting parts of the job.

Yet pricing decisions can have important consequences for the marketing
organization and the attention given by the marketer to pricing is just as
important as the attention given to more recognizable marketing activities.
Some reasons pricing is important include:

Most Flexible Marketing Mix Variable For marketers price is the


most adjustable of all marketing decisions. Unlike product and
distribution decisions, which can take months or years to change, or
some forms of promotion which can be time consuming to alter (e.g.,
television advertisement), price can be changed very rapidly. The
flexibility of pricing decisions is particularly important in times when
the marketer seeks to quickly stimulate demand or respond to competitor
price actions. For instance, a marketer can agree to a field salespersons
request to lower price for a potential prospect during a phone
conversation. Likewise a marketer in charge of online operations can
raise prices on hot selling products with the click of a few website
buttons.
Setting the Right Price Pricing decisions made hastily without
sufficient research, analysis, and strategic evaluation can lead to the

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marketing organization losing revenue. Prices set too low may mean the
company is missing out on additional profits that could be earned if the
target market is willing to spend more to acquire the product.
Additionally, attempts to raise an initially low priced product to a higher
price may be met by customer resistance as they may feel the marketer is
attempting to take advantage of their customers. Prices set too high can
also impact revenue as it prevents interested customers from purchasing
the product. Setting the right price level often takes considerable market
knowledge and, especially with new products, testing of different pricing
options.
Trigger of First Impressions - Often times customers perception of a
product is formed as soon as they learn the price, such as when a product
is first seen when walking down the aisle of a store. While the final
decision to make a purchase may be based on the value offered by the
entire marketing offering (i.e., entire product), it is possible the customer
will not evaluate a marketers product at all based on price alone. It is
important for marketers to know if customers are more likely to dismiss
a product when all they know is its price. If so, pricing may become the
most important of all marketing decisions if it can be shown that
customers are avoiding learning more about the product because of the
price.
Important Part of Sales Promotion Many times price adjustments is
part of sales promotions that lower price for a short term to stimulate
interest in the product. However, as we noted in our discussion of
promotional pricing in Part: 15: Sales Promotion tutorial, marketers
must guard against the temptation to adjust prices too frequently since
continually increasing and decreasing price can lead customers to be
conditioned to anticipate price reductions and, consequently, withhold
purchase until the price reduction occurs again.

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Some of the more common pricing objectives are:

Maximize long-run profit


Maximize short-run profit
Increase sales volume (quantity)
Increase dollar sales
Increase market share
Obtain a target rate of return on investment (ROI)
Obtain a target rate of return on sales
Stabilize market or stabilize market price: an objective to stabilize price
means that the marketing manager attempts to keep prices stable in the
marketplace and to compete on nonprime considerations. Stabilization of
margin is basically a cost-plus approach in which the manager attempts to
maintain the same margin regardless of changes in cost.
Company growth
Maintain price leadership
Desensitize customers to price
Discourage new entrants into the industry
Match competitors prices
Encourage the exit of marginal firms from the industry
Survival
Avoid government investigation or intervention
Obtain or maintain the loyalty and enthusiasm of distributors and other sales
personnel
Enhance the image of the firm, brand, or product
Be perceived as fair by customers and potential customers
Create interest and excitement about a product
Discourage competitors from cutting prices
Use price to make the product visible"
Build store traffic
Help prepare for the sale of the business (harvesting)
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Social, ethical, or ideological objectives
Get competitive advantage

FACTORS EFFECTING DEMAND


Consider the factors affecting the demand for a product that are

(1) Within the control of a business and

(2) Outside the control of a business:

Factors within a businesses control include:

Price (assuming an imperfect market i.e. not perfect competition)

Product research and development

Advertising & sales promotion

Training and organization of the sales force

Effectiveness of distribution (e.g. access to retail outlets; trained distributor


agents)

Quality of after-sales service (e.g. which affects demand from repeat-


business)

Factors outside the control of business include:

The price of substitute goods and services

The price of complementary goods and services

Consumers disposable income

Consumer tastes and fashions

Price is, therefore, a critically important element of the choices available to


businesses in trying to attract demand for their products

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SETTING PRICING POLICY

STEP 1: SELECTING THE PRICING OBJECTIVES:


The company first decides where it wants to position it market offering. The
clearer a firms objectives, the easer is to set price. A company can pursue
any of five major objectives through pricing: survival, maximum current
profit, maximum market share, maximum market skimming, or product
quality leadership.
Company purchase survival as their major objective if they are
plagued with over capacity, intense competition, or change in consumer
wants. As long as prices cover variable costs and some fixed costs, a
company stays in business. Survival is a short run objective; in the long
run, a firm must learn how to add value or face extinction.
Many companies try to set prices that will maximize current
profits. They estimate the demand and costs associated with alternative
prices and choose the price that produces maximum current profit, cash
flow, or Rate of return on investment. This strategy assumes that the firm
has knowledge of its demand and cost functions; in reality, these are
difficult to estimate. In emphasizing current performance, a company
may sacrifice long run performance by ignoring the effects of other
marketing mix variables, competitors reactions, and legal restraints on
price.
Some companies want to maximize their market share. They
believe that a higher sales volume will lead to lower cost and higher long
run profit they set the lowest price assuming the market is price sensitive.
It often happens that companies unwilling a new technology
favor setting high prices to skim the market. Sony is a frequent
practitioner of market skimming pricing.

When Sony introduced the worlds first high definition television (HD-
TV) to the Japanese market in 1990, the high-tech sales cost $43000.This
television were purchased by customers who could afford to pay a high
price for the new technology. Sony rapidly reduced the price over the
next three years to attract new buyers, and by 1993a 28-inch H-D tv cost
Japanese buyers just over $6000.In 2001 a customer cold buy a 40-inch

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H-D TV for about $2000.A price many could afford. In this way, Sony
skimmed the maximum amount of revenue from the various segments of
the markets.

STEP 2: DETERMING DEMAND:


Each price will lead to different level of demand and therefore have
a differ impact on a companys marketing objectives. The relation
between alternative prices and the resulting current demand is captured in
demand curve. In the normal case, demand and price are inversely
related; the higher the price, the lower the demand. In this case of
prestige goods the demand curve sometimes slopes upward. Perfume
Company raised its price and sold more perfumes rather than less! Some
customer takes the higher price to signify a better product. However if
the price is too high, the level of demand may fall.
On the other hand, the impact of internet has been to increase
customers price sensitivity. In buying a specific book online, for e.g. , a
customer can compare the price offered by over 2 dozen online book
stores by just taking mysimon.com. These prices can differ by as much as
20 percent. The internet increases the opportunity for price sensitive
buyers to find and favor lower-price sites. At the same time, many buyers
are not that price sensitive. McKinsey conducted a study and found that
89 percent of internet customers visit only 1 book site, 84 percent visited
only 1 toy site, and 81 percent visited only 1 music site, which indicates
that there is a less price comparison shopping taking place on the internet
that is possible.
Companies need to understand the price sensitivity of their
customers and prospects and their trade-offs peoples are willing to make
between price and products characteristics.

STEP 3: ESTIMATING COSTS:

Demand sets a ceiling of a price on the price the company can


charge for its product. Costs set the floor. The company wants to charge a
price that covers its cost of production, distributing, and selling the
product, including a fair return for its efforts and risks.

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TYPES OF COSTS AND LEVELS OF PRODUCTION:
A companys costs take two firms, fixed and variable. Fixed costs (also
known as over head) are costs that do not vary with production or sales
revenue. Accompany must pay bills each month for rent , heat, and trust,
salaries, and so on , regardless of output .
Variable costs vary directly with the level of production. For
example, each hand calculator produced by Texas Instruments involves a
cost of plastic, macro-processing chips, packaging, and the like. These
costs tend to be constant per unit produced; they are called variable
because their total varies with the number of unit produced.
Total cost consists of the sum of the fixed and variable costs
for any given level of production. Average costs is the cost per unit at
that level of production; if is equal to total cost divided by production.
Management wants to charge a price that will at least cover a total
production cost at a given level of production.

ACCUMULATED PRODUCTION:

Suppose TI runs a plant that produces three thousand hand calculators


per day. As TI gains experience producing hand calculators, its methods
improve. Workers learn shortcuts, materials flow more smoothly, and
procurement costs falls. The result shows, in that average cost falls with
the accumulated production experience.

DIFFERENTIATED MARKETING OFFERS:


Todays companies try to adopt their offers and terms to
different buyers. Thus a manufacturer will negotiate different terms with
different retail chains. One retailer may want daily delivery (to keep
stock lower) while an other may accept twice a week delivery in order to
get a lower price. The manufacturers costs will differ with each chain,
and so will its profits.

TARGET COSTING
Costs change with production sale and experience. They can
also change as a result of concentrated efforts by designers, engineers and
purchasing agents to reduce them.
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STEP 4: ANALYZING COMPETITORS COSTS,
PRICES, &OFFERS:
Within the range of possible prices determined by market
demand and companys costs, a firm must take the competitors costs,
prices, and possible price reactions into account. The firm should first
consider the nearest competitors price. If the firm offers contains
positive differentiation features not offered by the nearest competitors,
their worth to the customer should be evaluated and added to the
competitors price. If the competitors offers contains some features not
offered by the firm, their worth o the customer should be evaluated and
subtracted from the firms price. Now the firm can decide whether it can
charge more, the same, unless than the competitor. A firm must be aware,
however, that competitors can change their prices in reaction to the price
set by the firm.

STEP 5: SELECTING THE PRICING METHOD:

Given the three cs- the customers demand schedule, the cost
function, the competitors prices- a company is now ready to select a
price.
Companies select a pricing method that includes one or more of
various considerations. We will examine seven price setting methods:
mark-up pricing, target return pricing, perceive value pricing, value
pricing, going rate pricing, action type pricing and group pricing.

MARK-UP PRICING:
The most elementary pricing method is to add a standard
mark-up to the products cost. Construction companies submit job bids
by estimating the total project cost and adding a standard mark-up for
profit.

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Suppose a toaster manufacture has a following cost and sale expectation

Variable cost per unit .. $10


Fixed cost . 300,000
Expected unit sales . 50,000

The manufacturers unit cost is given by:

Unit cost= variable cost + fixed cost =$10+ $300,000 =$16


Unit sales 50,000

Now assume the manufacturer wants to earn a 20 % markup on sales.


The manufacturers markup price is given by:

Markup price = unit cost = $16 =$20


(1-desired return on sales) 1-0.2

TARGET-RETURN PRICING:
In target return pricing the firm determines the
price that would yield its target rate of return on investment (ROI). Target
pricing is used to general motors, which price its auto-mobiles to achieve
a 15-20 percent ROI.

PERCIVED-VALUE PRICING:
In increasing number of companies based their price on
the customers perceived value. They must deliver the value promised by
their value proposition, and the customer must perceived this value. They
use the other marketing mix elements, such as advertising and sales
force, to communicate and enhance perceive value in buyers mind.

VALUE-PRICING:
In recent years, several companies have adopted value
pricing, in which they win loyal customers by charging a fairly low price
for a high quality offering. Among the best practitioners of value pricing
are WALL-MART, IKEA, and SOUTH-WEST airlines.

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GOING RATE-PRICING:
In going rate pricing, the firm basis its price largely on
competitors prices. The firm might charge the same, more, or less than
major competitors. In oligopolistic industries that sell a commodity such
as steel, paper, or fertilizers, firms normally charge the same price.

ACTION TYPE PRICING:


Is growing more popular, especially with the growth of the
internet. There are over 2000 electronic market places selling everything
from pigs to use vehicles to cargo to chemicals. One major use of actions
is to dispose of excess inventories or to use good. Company needs to be
aware of the three major types of actions and their separate pricing
procedures

*ENGLISH ACTIONS (ascending bids)


*DUTCH ACTIONS (descending bids)
*SEALED BIDS ACTIONS

GROUP PRICING:
The internet is facilitating methods where by consumers are
business buyers can join groups to buy at a lower price. Consumer can go
to volumebuy.com to buy electronics, computers, subscriptions, and
another item.

STEP 6: SELECTING THE FINAL PRICE:


Pricing method narrow the range from which the company must select
its final price. In selecting that price, the company must consider
additional factors including physiological pricing, gain and risk sharing
pricing, the influence of other marketing mix-elements on price,
company pricing policy and the impact of price on other parties.

PHYSIOLOGICAL PRICING:
Many customers use price as an indicator of quality. Image pricing is
especially effective with ego-sensitive products such as perfumes and
expensive cars.

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GAIN-RISK-SHARING PRICING:
Buyer may resist accepting a sellers proposals because of the high perceive
level of a risk. The seller has the option of offering to absorb part or all of
the risk if he does not deliver the full promised value.

THE INFLUENCE OF OTHER MARKETING MIXES


ELEMENTS:
The final price must take into account the brands quality and advertising
relating to competition.

*Brands with average relative quality but high relative advertising budgets
were able to charge premium prices.

IMPACT OF PRICING ON OTHER PARTIES:

Management must also consider he reaction of other parties to the


contemplated price. How will distributors and dealers feel about it? Will the
sales force be willing to sale at that price? How will competitors react? Will
supplier raise their prices when they see the companys price? Will the
government intervene and prevent this price from being charged?

PRICING-INFLUENCES ON PRICING POLICY

The factors that businesses must consider in determining pricing policy can be
summarized in four categories:

(1) Costs

In order to make a profit, a business should ensure that its products are
priced above their total average cost. In the short-term, it may be acceptable
to price below total cost if this price exceeds the marginal cost of production
so that the sale still produces a positive contribution to fixed costs.

(2) Competitors

If the business is a monopolist, then it can set any price. At the other
extreme, if a firm operates under conditions of perfect competition, it has no

18
choice and must accept the market price. The reality is usually somewhere in
between. In such cases the chosen price needs to be very carefully
considered relative to those of close competitors.

(3) Customers

Consideration of customer expectations about price must be addressed.


Ideally, a business should attempt to quantify its demand curve to estimate
what volume of sales will be achieved at given prices

(4) Business Objectives

Possible pricing objectives include:

To maximize profits

To achieve a target return on investment

To achieve a target sales figure

To achieve a target market share

To match the competition, rather than lead the market

PRODUCT PRICING STRATEGIES

Developing a pricing strategy perplexes many CEOs, marketing and sales


executives, and brand managers. It's not surprising really: real businesses
don't always follow the pricing strategy models that business schools and
books on pricing strategy present. But there are a few basic guidelines that
can help take some of the mystery out of the process of establishing a
successful pricing strategy.

We consider that there are four basic components to a successful pricing


strategy:

1. Costs. Focus on your current and future, not historical, costs to


determine the cost basis for your pricing strategy.

2. Price Sensitivity. The price sensitivities of buyers shift based on a


number of factors and your pricing strategy must shift with them.

19
3. Competition. Pay attention to them, but don't copy them . . . when it
comes to pricing strategy they may have no idea what they're doing.
4. Product Lifecycle. How you price, and what value you provide for
that price, will change as you move through the product lifecycle.

Pricing before you build


Establishing a pricing strategy is an activity that should be completed
before you start product development. The only way to accurately determine
how much money you can afford to spend on development, support,
promotion and the other costs associated with a product is to analyze how
much of that product you will sell, and at what price. That's the heart of a
successful pricing strategy.

Use the Right Costs


A successful pricing strategy is your means of making a profit today, not of
recovering costs spent a year ago. Don't use the cost of developing your
current product as the basis for its price. Instead, use the current costs of
developing your new products as the basis of the price of your current
product.

Raise Price to Exploit a Reticence to Switch


Once the customer is yours, the situation switches in your favor. One of the
resistance factors your sales force encounters on a new sale is reticence to
switch. An existing customer is still unwilling to learn something new, only
now they're afraid to switch FROM you, not TO you. They would much
prefer to add the functionality of your product enhancements instead of
learning how to use something new. For you, price sensitivity is much lower
as comfort and ease factors increase. So you might raise your update pricing
accordingly.

Study the Competition


Study the competition, but don't react and don't copy them, since they're
likely making mistakes anyway. Let them guide you in terms of where you
set your boundaries, and in terms of counter offensives you can launch to
deal with obvious bonehead pricing on their part. And remember this as
well: any move you make can be countered by them just as easily. Don't get
caught in a no-win price war--which may hurt your product, their product
and devalue your marketplace.

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Align with the Product Life Cycle
How high or low you set your price is also going to be driven by where your
product is in its life cycle. In general, the farther along you go toward the
Decline phase the lower your price should be, since your market will be (a)
saturated with product and (b) have increased price sensitivity as their
knowledge of the products increases. One technique to consider is
unbundling support, training and services from the product itself, which will
allow you to lower price without discounting.

Strategic pricing is the effective, proactive use of product pricing to drive


sales and profits, and to help establish the parameters for product
development. Used wisely it is a clearly powerful tool for successful
marketing strategies.

NEW PRODUCT-PRICING STRATEGY

Pricing strategies usually change as the product passes through its life cycle.
The introductory stage is especially challenging. Companies bringing out
new product face the challenge of setting prices for the first time

1 ) Market-skimming pricing
The practice of price skimming involves charging a relatively high price
for a short time where a new, innovative, or much-improved product is
launched onto a market.

The objective with skimming is to skim off customers who are willing to
pay more to have the product sooner; prices are lowered later when demand
from the early adopters falls.

The success of a price-skimming strategy is largely dependent on the


inelasticity of demand for the product either by the market as a whole, or by
certain market segments.

High prices can be enjoyed in the short term where demand is relatively
inelastic. In the short term the supplier benefits from monopoly profits, but
as profitability increases, competing suppliers are likely to be attracted to the
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market (depending on the barriers to entry in the market) and the price will
fall as competition increases.

The main objective of employing a price-skimming strategy is, therefore, to


benefit from high short-term profits (due to the newness of the product) and
from effective market segmentation.

There are several advantages of price skimming


Where a highly innovative product is launched, research and development
costs are likely to be high, as are the costs of introducing the product to the
market via promotion, advertising etc. In such cases, the practice of price-
skimming allows for some return on the set-up costs

By charging high prices initially, a company can build a high-quality image


for its product. Charging initial high prices allows the firm the luxury of
reducing them when the threat of competition arrives. By contrast, a lower
initial price would be difficult to increase without risking the loss of sales
volume

Skimming can be an effective strategy in segmenting the market. A firm


can divide the market into a number of segments and reduce the price at
different stages in each, thus acquiring maximum profit from each segment

Where a product is distributed via dealers, the practice of price-skimming


is very popular, since high prices for the supplier are translated into high
mark-ups for the dealer

For conspicuous or prestige goods, the practice of price skimming can


be particularly successful, since the buyer tends to be more prestige
conscious than price conscious. Similarly, where the quality differences
between competing brands is perceived to be large, or for offerings where
such differences are not easily judged, the skimming strategy can work well.
An example of the latter would be for the manufacturers of designer-label
clothing.

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2) Market-Penetration pricing
Penetration pricing involves the setting of lower, rather than higher prices in
order to achieve a large, if not dominant market share.

This strategy is most often used businesses wishing to enter a new market or
build on a relatively small market share.

This will only be possible where demand for the product is believed to be
highly elastic, i.e. demand is price-sensitive and either new buyer will be
attracted, or existing buyers will buy more of the product as a result of a low
price.

A successful penetration pricing strategy may lead to large sales


volumes/market shares and therefore lower costs per unit. The effects of
economies of both scale and experience lead to lower production costs,
which justify the use of penetration pricing strategies to gain market share.
Penetration strategies are often used by businesses that need to use up spare
resources (e.g. factory capacity).

A penetration pricing strategy may also promote complimentary and captive


products. The main product may be priced with a low mark-up to attract
sales (it may even be a loss-leader). Customers are then sold accessories
(which often only fit the manufacturers main product) which are sold at
higher mark-ups.

Before implementing a penetration pricing strategy, a supplier must be


certain that it has the production and distribution capabilities to meet the
anticipated increase in demand.

The most obvious potential disadvantage of implementing a penetration


pricing strategy is the likelihood of competing suppliers following suit by
reducing their prices also, thus nullifying any advantage of the reduced price
(if prices are sufficiently differentiated the impact of this disadvantage may
be diminished).

A second potential disadvantage is the impact of the reduced price on the


image of the offering, particularly where buyers associate price with quality.

23
PRODUCT-MIX PRICING STRATEGIES
The strategy for setting the products price often has to be changed when
the product is part of a product mix. In this case the firm looks for a set of
prices that maximizes the profit on the total product mix. Pricing is
difficult because the various products have related demand and cost and
face different degrees of competition:

Product Line: Setting price steps between product line items (for example.
Honda Civic is implementing product line pricing strategy for their cars as
they are offering different models of same line for different prices with
different features)

Optional Product: Pricing optional or accessory products (for example. If a


person buys a new Nokias 6600 cell phone and if he also tends to pay extra
amount of money for the memory card inside of it than it is optional pricing
for that product..or another example can be a person buying a personal
computer and paying extra amount of money for the video card inside of
it)

Captive Product: Pricing products that must be used with the main product
(for example. Colgate offering its toothbrush along with its toothpaste.or
Gillette offering set of additional blades with its razors)

By-Product: Pricing low value by product to get rid of them (for example.
Many companies obtain soap during the refining process of cooking oils
and then manufactures beauty soaps and sells it along with the cooking oils
as their by-products. As Unilever is obtains Lux through Dalda)

Product Bundle: Pricing bundles of products sold together (for example


Nescafe is offering its coffee along with its cup for 100 rupees thus their
offer is similar to product bundlebesides that different combo deals of
KFC which includes different offerings under one state is also an example of
product bundle pricing)

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PRICE ADJUSTMENT STRATEGIES
A company usually adjusts their basic prices to account for various
customers differences and changing situations. Here we examine the six
price adjustment strategies.

1) Discount & Allowance: reduced prices to reward customer responses


such as paying early or promoting the product. (For example. Different
seasonal or occasional offers of Nike or Chen one offering certain discount
on different range of shopping)

2) Discriminatory: adjusting prices to allow for differences in customers,


products, and locations (for example. Price of Pepsi in Pearl Continental
Hotel as it is much higher than its actual value in the hotel just because of
the segment and environmental change in this case the cost is the same but
according to the segment pricing is different)

3) Psychological: adjusting prices for psychological effects. Ex: $299 vs.


$300 (for example. English toothpaste reduced its prices from 12 to 10 just
to attract their customers and increase their sales in this way they
implemented physiological pricing strategy besides that different offers in
the market pricing like just 99 rupees or 999 rupees in various stores is also
physiological pricing strategy.)

4) Value: adjusting prices to offer the right combination of quality and


service at a fair price. (For example a person shopping in Zainab market
might seek value and quality at fair price. This process helps to deliver value
and satisfaction to customers.)

5) Promotional: temporarily reducing prices to increase short-run sales.


(For example. Pepsi reduces its prices during the month of Ramadan and
also offers different schemes and similarly Warid Zem offers nights free
offers to their customers)

6) Geographical: adjusting prices to account for geographic location of


customer. (For example. DHL charges different rates according to the
destination)

25
*FOB Origin Pricing: Geographical pricing strategy in which goods are
placed free on board a career, the customer pays the freight from the factory
to the destination. (For example. A person buying a compact disc from
abroad in which he have to pay the transport expense for bringing it in
access)

*Uniform Delivered Pricing: A geographical pricing strategy in which the


company charges the same price plus frightened to all customers, regardless
of their location.( for example . every customer have to pay a similar and
specified amount of money to Nike if they are transacting from abroad)

*Zone Pricing: A geographical pricing strategy in which the company sets


up to or more zones. All customers within a zone pay the same total price;
the more distant zone, the higher the price.( for example. If Adidas is
transacting with its customers from abroad regions then they will charge
freight according to the distance of the region and as the distance will
increase freight charges will also increase.)

*Basing Point Pricing: A geographical pricing strategy in which the seller


designs some city as a basing point and charges all customers the freight cost
from that city to the customer. ( for example. Dell computers established
their basing point in India and then delivers their products in the Asian
regions charging freight from that region)

7) International: adjusting prices in international markets. (For example.


Prices of Levis or Nike might not be same in dolmen mall and in
international storesit will be definitely differ according to the
environmental offerings.)

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SETTING THE PRICE
A firm must set a price for the first time when it develops a new
product, when it introduces its regular product into a new distribution
channel or geographical area, and when it enters bids on new contract work.
The firm must decide where to position its product on quality and price. In
some markets, such as the auto markets, as many as eight price points can be
found.

SEGMENT EXAMPLE

Ultimate Rolls-Royce
Gold standard Mercedes Benz
Luxury Audi
Special need Volvo
Middle Buick
Price alone Kia

Figure 16.1 shows nine price quality strategies. The diagonal strategies
1,5,and 9 can all co-exit in the same market; that is , one firm offer a high
quality product at a high price , another offers an average quality product at
an average price and still another offers a low quality product at a low price.
All three competitors can co-exit as long as the market consists of three
sgroups of buyers: those who insist on quality, those who insist on price, and
those who balance the too.

Strategies 2,3and 6 are ways to attack the diagonal positions. Strategy


to says Our product has the same high quality as product 1 but we charge
less. Strategy 3 says the same thing and offers and even greater saving. If
quality-sensitive customers believe these competitors, they will sensibly buy
from them and save money (unless firm earns 1s product has acquirable
snob appeal.

Positioning strategies 4,7and 8 amount to over-pricing the product in


relation to its quality. The customer will feel taken and will probably
complain or spread bad words of mouth about the company.

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PHILIP KOTLER HAVE IDENTIFIED 9 PRICE QUALITY
STRATEGIES:

NINE PRICE QUALITY STRATEGIES:

PRICE

HIGH MEDIUM LOW

HIGH 1. PREMIUM 2.HIGH-VALUE 3.SUPER- VALUE


STRATEGY STRATEGY STRATEGY

4.OVER-
5.MEDIUM-VALUE 6. GOOD-VALUE
CHARGING
STRATEGY STRATEGY
STRATEGY

7. RIP-OFF 8. FALSE-ECONOMY 9.ECONOMY-


STRATEGY STRATEGY STRATEGY

MEDIUM

LOW

FACTORES AFFECTING PRICING DECISION


For the remainder of this tutorial we look at factors that affect how
marketers set price. The final price for a product may be influenced by
many factors which can be categorized into two main groups:

Internal Factors - When setting price, marketers must take into


consideration several factors which are the result of company decisions
and actions. To a large extent these factors are controllable by the
company and, if necessary, can be altered. However, while the
organization may have control over these factors making a quick change

28
is not always realistic. For instance, product pricing may depend heavily
on the productivity of a manufacturing facility (e.g., how much can be
produced within a certain period of time). The marketer knows that
increasing productivity can reduce the cost of producing each product
and thus allow the marketer to potentially lower the products price. But
increasing productivity may require major changes at the manufacturing
facility that will take time (not to mention be costly) and will not
translate into lower price products for a considerable period of time.
External Factors - There are a number of influencing factors which
are not controlled by the company but will impact pricing decisions.
Understanding these factors requires the marketer conduct research to
monitor what is happening in each market the company serves since the
effect of these factors can vary by market.

Pricing in Different Types of Markets

Pure Competition:

Many buyers and sellers

where each hasMonopolistic


little effect Competition:

Manyprice
on the going market buyers and sellers

who trade over a

range of prices

Oligopolistic Competition:
Pure Monopoly:
Few sellers who are
Market consists of a
sensitive to each others
single seller
pricing/marketing strategies

29
Cost-Plus Pricing

Adding a standard markup to the cost of the product.


Popular because:
Sellers more certain about cost than demand
Simplifies pricing
When all sellers use, prices are similar and competition is
minimized
Some feel it is more fair to both buyers and sellers

Competition-Based Pricing
Going-Rate Pricing:

Firm bases its price largely on competitors prices, with less


attention paid to its own costs or to demand.
Sealed-Bid Pricing:

Firm bases its price on how it thinks competitors will price


rather than on its own costs or on demand.

INITIATING AND RESPONDING TO PRICE CHANGES:


Companies often face situations where they may need to cut or raise prices.

INITIATING PRICE CUTS:

30
Several circumstances might lead a firm to cut prices one is
exceed plant capacity: the firm needs additional business and cannot
generate it throw increased sales efforts, a product importance, or other
majors. It may resort to aggressive pricing, but in initiating a price cut, the
company may trigger a price war. Another circumstance is declining market
share. A general motor, for examples, cuts its sub-compact car prices by 10
percent on the west coast when Japanese competition kept making in roads.

Price cutting strategy involves possible traps:

*Low quality trap: Customer will assume that the quality is low

*Shallow-pocket trap: The higher price competitors may cut their prices
and may have longer staying power because of deeper cash reserves.

INITIATING PRICE INCREASES:

A successful price increase can raise profit considerably for example: if the
companys profit margin is 3 percent of sales, 1 percent price increase will
increase profit by 33 percent if sales volume is unaffected.
A major circumstance provoking price increases is cost
inflation .rising cost unmatched by productivity gains squeeze profit margin
and lead companies to regular rounds of price increases. Companies often
raise their price by more than the cost increases ,in anticipation of further
inflation or government price control, in a practice called anticipatory
pricing.

REACTION TO PRICE CHANGES:

Any price change can provoke a response from customers,


competitors, distributors, suppliers and even government.

CUSTOMER REACTION:
Customer often question the motivation behind price changes, a
price cut can be interpreted in different ways : The item is about to be

31
replaced by a new model ; the item is faulty and is not selling well ; the
firm is in financial trouble ; the price will come down even further ; the
quality has been reduced. The price increase, which could normally deter
sales, may carry some positive meaning to customers: the item is hot
and represents and usually good values.

COMPETITORS REACTION:
Competitors are most likely to react with the number of firms
are few, the product is homo-genius and buyers are highly informed.

RESPONDING TO COMPETITORS PRICE CHANGES:


How should a firm respond to a price cut initiated by a
competitor? In markets characterized by high product homogeneity, the
firm should search for ways to enhance its augmented products.
Market leaders frequently face aggressive price cutting by smaller
firms trying to built market share. Using price, FUJI attracts KODAK,
BIC attract GILLETE, and COMPAQ attract IBM.
Brand leaders also face lower priced private-store brands. The brand
leader can respond in several ways:

Maintain price: A leader might maintain its price and profit margins,
believing that (1) it would lost too much profit if it reduces its price
(2) it would not lost much market share, and (3) it could regain market
share when necessary.
Maintaining price and add value: The leader could improve its
products and services, communication. The firm may find it cheaper
to maintain price and spend money to improve perceived quality then
to cut price and operate at a lower margin.
Reduced price: A leader might drop its price to match the
competitors price. It might do so because (1) its cost falls with volume
,(2) it would lost market share because the market is price sensitive,
(3) it would be hard to rebuild market share once it is lost. This action
will cut profit in the short-run.

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Case Study Analysis on
Pricing Strategy of NOKIA
History and growth of mobile phone industry in India

The real transformation came in the scenario of Indian telecom industry after
announcement of National telecom policy in 1994. The mobile services were
commercially launched in India in August 1995. In the initial 56 years the
average monthly subscribers additions were around 0.05 to 0.1 million only
and the total mobile subscribers base in December 2002 stood at 10.5
millions. However, after the number of proactive initiatives taken by
regulator and licensor, the monthly mobile subscriber additions increased to
around 2 million per month in the year 2003-04 and 2004-05. In the last few
years there has been a huge exponential growth with addition of about 10 to
15 million subscribers per month to customer base. In the initial days of
mobile phone in India in mid 1990s the grey market accounted for 80 per
cent of the mobile phone sales due to a huge price differential between the
legally imported and the grey market phones.

Even as the government slashed the duties at the same time various mobile
manufacturers reduced their rates to induce the customers to buy a phone
from authorized phone shop. Today the grey market comprises very small
share of market.

When mobile phones were introduced in India in the mid-90s, US based


Motorola, Sweden's Ericsson and Finland's Nokia dominated the handset
market in India. Over the years, the old order has changed today players like
Samsung, LG, Apple, Virgin, HTC, Huawei, Haier are all competing for a
place in the market. Apart from this there is also a competition from

33
imported unbranded Chinese mobiles which are avaible with lot many
features of a typically high end say Nokia mobile but, at a substantially
lesser price. After the initial dominance of Nokia from 1990s till 2002, a
change occurred in Indian market hen CDMA technology was launched in
the year 2003. At this point the Korean brands namely Samsung and LG
established themselves after they tied up with CDMA operator Reliance
Infocomm. This was a breakthrough in Indias mobile phone industry since,
people were able to get mobile phones with Reliance connection only for a
initial cost of about Rs. 500/-. This opened up a mass market for mobile
manufacturers in India.Gradually all the major players like Nokia, Motorola
came up with their CDMA models and have been able to regain their market
share. In the last few years India has witnessed a revolution in mobile phone
market with about 8 to 10 million subscribers being added to the customer
base each month. The major reasons for this boom have been:
1. Falling tariff rates of telecom service providers .
2. Fall in the prices of mobile handsets.
3. Increase in the reach of service providers covering ever nook and corner
of the country.

Scenario of Mobile phone industry


Following are the highlights of mobile phone industry in India as on
December, 2009:

1. The penetration of mobile phones stands at about 30%.


2. 81% of mobile users are in urban area.
3. Indias rural teledensity stands at about 12.6%
4. India has about 517 million subscribers by December, 2009.
5. It is forecasted that sales of mobile handsets in rural India will grow at
CAGR of around 17% from 2009 to 2012

Above figures clearly indicate that although mobile phones might have made
significant inroads into the urban market & urban market may start moving
towards saturation but, still lot of potential is to be explored in the rural
segment Also to understand the satisfaction level which users of above
brands express, we look at a consumer satisfaction survey, the results of
which are shown below.The
survey was done on Indian Urban mobile phone users with Sample size of

34
N=5,775.

Models Users Likely to recommend


LG 57.6%
Motorola 41.0%
Nokia 68.6%
Samsung 55.7%
Sony-Ericsson 65.3%

The result shows Nokia users are the most satisfied with their product
followed by Sony-Ericsson and LG. The results of above survey are
important since, mobile phone is a device which is frequently replaced in
few years time, so, the brand which provides maximum satisfaction to users
will be able to maintain high loyalty and hence, maintain its market share.

A segregation of Indian market on the basis of price bands is shown below.


We can see that mobile phones are available in various price bands from Rs.
2,000/- & less up to Rs. 50,000/-

A close study of the product offered by various companies reveals following:


1. Companies like HTC, Apple, Vertu have products only for the high end
market of Rs. 15,000/- and more.

35
2.On the other hand there are players like Usha lexus whose product fall in
the lower category with their products being available in price range of
minimum of Rs. 1,900/- to maximum Rs. 5,900/-. Also, Virgin mobile falls
in the same category.
3. Players like Onida have mobiles in lower prices (Rs. 2,000/-) to middle
price range (till Rs.9, 900/-).
4. Players like Motorola, Nokia, LG and Sony Ericsson have mobile phones
avaible in all different price range and hence, are able to target all the
different segments of the market.

Nokia, as a manufacture of mobile communication devices, was succeeded


in administrating marketing strategies in India markets. The reason is that
Nokia delivers better products which cater to the needs and preferences of
Indian consumers.

NOKIA - MADE IN INDIA A DETAILED ANALYSIS


In April 2005, Nokia India, a subsidiary of Finland-based Nokia, announced
that it was setting up a manufacturing facility for mobile devices in Chennai,
the state capital of Tamil Nadu in southern India. Nokia planned to invest
US$ 100-150 million in the facility, where the production was expected to
begin in the first half of 2006. Pekka Ala Pietil, President and Head of
Customer & Market Operations, Nokia Corporation said, Establishing a
new factory in India is an important step in the continuous development of
our global manufacturing network.4 India was ideal for Nokia's new
production facility. Each mobile handset has more than 400 parts and the
average production capacity of each manufacturing unit of Nokia is around
20 million units.

This level of manufacturing involves a total of 8 billion components per


annum, requiring strong logistical support. Nokia's manufacturing facility
needed to be located close to a major international airport or sea port for
quick supply of components. India met all these requirements, and also

36
enjoyed cheap manpower costs and proximity to the rapidly growing Asia
Pacific markets. Besides, Nokia was the market leader in mobile
communication devices in India. The company has been carrying out sales &
marketing, customer care and research & development activities in the
country. Nokia considers India to be one of its most important markets. The
company's Code Division Multiple Access (CDMA) 5 facilities is located in
Mumbai and provides software and technical support to CDMA consumers
in India and other Asia Pacific countries. In 2004, Nokia was chosen as the
most respected consumer durables company by Businessworld6. The
magazine wrote, This Finnish Companys debut at the top of the heap says
two things.

One, that its strategies - including ones like developing a phone


specifically for India - are respected. But, more importantly, Nokia's win is
also an endorsement of the importance of the ubiquitous cell phone as a
durable in today's world. After all, unlike its competitors, most of which
offer a slew of durables, Nokia is mostly a cell phone company.

In 2005, Nokia was recognized as the Brand of the Year by the


Confederation of Indian Industry, India's apex industry association. The
company was chosen for this award because of its high brand recall, well
established distribution channels and being 'most preferred' by the
consumers.
ABOUT NOKIA
Nokia was founded in 1865 by Fredrik Idestam in Finland as a paper
manufacturing company. In 1920, Finnish Rubber Works became a part of
the company, and later on in 1922, Finnish Cable Works joined them. All the
three companies were merged in 1967 to form the Nokia Group.

In the late 1970s, Nokia started taking an active interest in the power and
electronics businesses and by 1987, consumer electronics became Nokia's
major business. Nokia created the NMT mobile phone standard in 1981 and
launched the first NMT phone, Mobira Cityman, in 1987. The company
delivered the first GSM network to Radkilinia, a Finnish company in 1991,
and in 1992, Nokia 1011 a precursor for all Nokia's current GSM phones -
was introduced.

In the 1990s, Nokia provided GSM services to 90 operators across the


world. Another significant move of the company during this period was the
37
divestment of its non-core operations like IT. The company focused on two
core businesses mobile phones and telecommunications networks.
Between 1992 and 1996, the company exited from the rubber and cable
businesses as well... Nokia entered the Indian market in 1994. The first ever
GSM call in India was made on a Nokia 2110 mobile phone on its own
network in 1995. When Nokia entered India, the telecom policies were not
conducive to the growth of the mobile phone industry.
The tariffs levied on importing mobile phones were as high as 27%, usage
charges were at Rs.16 per minute and, at these high rates, consumers did not
take to mobile phones. Nokia also had to face tough competition from other
powerful global players like Motorola, Sony, Siemens and Ericsson...

Nokia was quick to learn from its mistakes and adopted strategies to regain
its lost market share. Globally, during the first quarter of 2005, the
company's sales reached 7.4 billion euros, with the company selling 54
million phones during the period. In India, Nokia continued its leadership in
GSM with a market share of 74% in March 2005. Nokia also surpassed
Samsung in color mobiles in the GSM segment, recording a share of 55% in
the same month Nokia reorganized itself at the global level in 2004. At this
point, a multimedia division was formed.

The division's Indian operations concentrated on promoting the concept of


high- end telephones in smaller towns while going in for higher volumes in
larger cities. The marketing division of the company concentrated on making
distributors in small towns sell high-end products. Though, the distributors
were skeptical to startwith, by the end of 2004, the process was streamlined
and the results started to show.

MARKET SEGMENTATION

There are different types of mobiles for different needs of an individual.


Nokia targets the entire segment with his variety.
Top Segment----------------Classy Products
Middle Segment-----------Best alternative
Low End Segment---------High Tech Product at Low Price

38
PRICING STRATEGY OF NOKIA

SKIMMING PRICING:

Price skimming is a pricing strategy in which a marketer sets a relatively


high price for a product or service at first and then lowers the price over
time. It is a temporal version of price discrimination/yield management. It
allows the firm to recover its sunk costs quickly before competition steps in
and lowers the market price. Price skimming is sometimes referred to as
riding down the demand curve. The objective of a price skimming strategy is
to capture the consumer surplus. If this is done successfully, then
theoretically no customer will pay less for the product than the maximum
they are willing to pay. In practice it is impossible for a firm to capture this
entire surplus. Nokia applies skimming strategy with all the products.

Premium pricing, penetration pricing, economy pricing, and price skimming


are the four main pricing policies/strategies. They form the bases for the
exercise.

39
CONCLUSION

The scope of the research paper was to discuss the concept on global
communication strategy adopted by various Indian and Global Companies
while entering the foreign market. This analysis and discussions has been
administered by selecting certain successful foreign Companies from the
Fortune 500, 2011 listing and other successful Indian Companies which have
made a mark in India and foreign market. This concept and discussion can
be extended through primary data collection methods to further strengthen
the topic into various dimensions of global, local and global strategic
implementation.

40
BIBLOGRAPHY

REFERENCES:
www.google.com

www.wikipedia.com

www.yahoo.com

www.bcg.com

www.tutor2u.com

www.echeats.com

www.knowthat.com

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BOOKS:

Principles of marketing (Gary Armstrong and Philip Kotler 10th


edition)

Marketing Management (Philip Kotler 11th edition)

42

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