TAMPERE UNIVERSITY OF TECHNOLOGYTampere School of Business and TechnologyONUR TAMURPRICING WHEN ENTERING A NEW MARKET IN B...
iiABSTRACTWith the rise of globalization and saturated local markets, many companies startedchasing international opportun...
iiiPREFACEThis paper discusses the concepts of pricing and pricing behaviour in a new marketin B2B environment. The paper ...
ivTABLE OF CONTENTSABSTRACT ______________________________________________________ iiPREFACE _____________________________...
11 INTRODUCTION1.1 BACKGROUNDAccording to Lee and Carter (2005), globalization is an inevitable and irreversibleprocess fu...
2framework in a new market will be highlighted. Next, market entry modes in aprofitability point of view, value creation i...
32 ENTERING NEW MARKETS IN B2B2.1 THE CHALLENGES OF B2B MARKETSThe intention to make profit is the most important characte...
42.2 MARKET ENTRY BARRIERS IN B2BThe entry barriers refer to industry characteristics which result in requirements thatcom...
52.3 MARKET ENTRY STRATEGIESInternationalization and its impact on market entry is a strategic decision inglobalization (L...
62002). Thus, it is important to pick the right entry strategy by examining theposition and opportunities of the firm in t...
7are already cluttered with products offer some opportunity for a late arrival that isof better quality or uses new delive...
83 PRICING IN B2B3.1 DIFFERENCES OF B2B AND B2C PRICINGAlthough pricing in B2B and retail markets have similar goals, they...
9addition pricing authority is also centralized in B2C. However, In B2B it isdistributed as the sales team determines disc...
10First, skim pricing means that prices are set high relative to mainstream competitorsto maximize revenues generated from...
11 Figure 2. Pricing framework in a new marketThe basic understanding of competitors and the level of ...
124 PRICING IN A NEW MARKET IN B2B ENVIRONMENT4.1 MARKET ENTRY MODES IN TERMS OF PROFITABILITYThere are five different mar...
134.2 VALUE CREATION IN B2BEven though one of the characteristics in B2B markets is that the use of direct saleschannels, ...
14 Figure 5. The effect of sales volume on the end-customer price and distributor’s priceThe discounts are also usually ...
15 Figure 6. Pricing structure while exportingAs illustrated in the figure above, exporting does not...
16for the products available. As they work for the manufacturer, they decrease thecontribution costs of the manufacturer b...
17 Figure 9. Pricing structure while using sales officeSales offices are the most profitable option for m...
185 CONCLUSIONGlobalization trend has enabled new business opportunities for all companiesaround the world. Many companies...
19REFERENCESAnderson, J.C. and Narus, J.A. (1990), “A model of distributor firm and manufacturer-firm working partn...
20Lee, K., Carter, S. (2005) Global Marketing Management: Changes, Challenges and New Strategies. Oxford Universit...
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Pricing When Entering a New Market in B2B Environment: Understanding the B2B Dynamics

With the rise of globalization and saturated local markets, many companies started chasing international opportunities that would help them expand to new countries and increase their brand recognition around the globe. One of the challenges that companies face while entering a new market is defining the right price and pricing of their offering to be competitive and successful in the market. In B2B area, there are not any wide research on pricing issues that companies face in the markets that they are planning to enter and the effects of business relations on pricing. This paper focuses on market entry strategies and market entry modes, the fundamentals of pricing in a new market and the differences of B2B and B2C pricing. The study covers market entry modes and its impact on profitability, value creation in B2B area and the key aspects of pricing behaviour while entering a new market. This study in general provides a framework for implementing the right pricing strategy while entering new markets and defining the right pricing behaviour in B2B environment. This framework enables companies to understand the dynamics of B2B environment covering buyer-supplier and distributors relations and providing pricing models for companies to be a competitive player.
Published on: Mar 4, 2016
Published in: Business      Technology      
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Transcripts - Pricing When Entering a New Market in B2B Environment: Understanding the B2B Dynamics

  • 1. TAMPERE UNIVERSITY OF TECHNOLOGYTampere School of Business and TechnologyONUR TAMURPRICING WHEN ENTERING A NEW MARKET IN B2B ENVIROMENT:Understanding the B2B DynamicsSeminar Report
  • 2. iiABSTRACTWith the rise of globalization and saturated local markets, many companies startedchasing international opportunities that would help them expand to new countriesand increase their brand recognition around the globe. One of the challenges thatcompanies face while entering a new market is defining the right price and pricingof their offering to be competitive and successful in the market. In B2B area, thereare not any wide research on pricing issues that companies face in the markets thatthey are planning to enter and the effects of business relations on pricing.This paper focuses on market entry strategies and market entry modes, thefundamentals of pricing in a new market and the differences of B2B and B2Cpricing. The study covers market entry modes and its impact on profitability, valuecreation in B2B area and the key aspects of pricing behaviour while entering a newmarket.This study in general provides a framework for implementing the right pricingstrategy while entering new markets and defining the right pricing behaviour inB2B environment. This framework enables companies to understand the dynamicsof B2B environment covering buyer-supplier and distributors relations andproviding pricing models for companies to be a competitive player. Tamur, O.
  • 3. iiiPREFACEThis paper discusses the concepts of pricing and pricing behaviour in a new marketin B2B environment. The paper attempts to highlight the key aspects of supplier-manufacturer relations, value creation models and pricing framework to becompetitive in the new market.It has been a very interesting topic for me because of my special interest in B2Bmarkets and pricing issues in the business environment. I am very thankful to mysupervisor Dr. Jouni Lyly-Yrjänäinen who helped me to pick the right topic foranalysis and supported me through the process. I am thankful to my seminar groupmembers who helped me with their inputs during discussions. Also, I am verythankful to Ali Kutlay and Mert Murat Mertadam for their support and feedbackthrough the preparation of the paper.Onur TamurTampere, January 2011 Tamur, O.
  • 4. ivTABLE OF CONTENTSABSTRACT ______________________________________________________ iiPREFACE _______________________________________________________ iii1 INTRODUCTION ____________________________________________ 1 1.1 Background __________________________________________________ 1 1.2 Objective of the Paper __________________________________________ 12 ENTERING NEW MARKETS IN B2B ___________________________ 3 2.1 The Challenges of B2B Markets __________________________________ 3 2.2 Market Entry Barriers in B2B ___________________________________ 4 2.3 Market Entry Strategies ________________________________________ 5 2.4 Market Entry Modes ___________________________________________ 63 PRICING IN B2B _____________________________________________ 8 3.1 Differences of B2B and B2C Pricing ______________________________ 8 3.2 Pricing Techniques ____________________________________________ 9 3.3 Pricing Framework in a New Market ____________________________ 104 PRICING IN A NEW MARKET IN B2B ENVIRONMENT ________ 12 4.1 Market Entry Modes in Terms of Profitability _____________________ 12 4.2 Value Creation in B2B _________________________________________ 13 4.3 Pricing Behaviour in a New Market______________________________ 145 CONCLUSION ______________________________________________ 18REFERENCES __________________________________________________ 19 Tamur, O.
  • 5. 11 INTRODUCTION1.1 BACKGROUNDAccording to Lee and Carter (2005), globalization is an inevitable and irreversibleprocess fundamental to the future of world economic development. The growingintegration of national economies around the world will lead to rapid economicgrowth and poverty reduction in developed and developing countries. However,there are also some arguments supporting that globalization exacerbates povertyand inequality between rich and poor, cultural convergence and spread of deadlydiseases (Lee and Carter 2005).Even though there are many debates on globalization, it is accepted as an industrialreality and an increasing trend in current business environment. As the developingtechnology is reducing the transportation costs, the interests of organizationsworking in international markets will keep on spreading around the globe. Thispresents organizations with unlimited opportunities to grow and transform tobecome not only larger but also more competitive and efficient (Lee and Carter2005). On the other hand, it covers some risks as well. Companies need to followthe right strategies in terms of market entry and pricing to be able to compete withother international companies and local competitors in the market and to keep onwidening their business operations around the world.1.2 OBJECTIVE OF THE PAPERAs it is explained in the background section, globalization is an increasing trend inbusiness and organizations need to follow this trend by using the right strategiesand taking the right decisions to be able to have competitive advantage against theircompetitors. The objective of the paper is to... ...analyze the possible market entry and pricing strategies in business-to- business environments and how the organizations should position their pricing behaviour and value creation model.The paper will consist of five major parts. First, the background information aboutglobalization issues with a short explanation about opportunities and challengeswill be stated and the objective of the paper will be defined. Second, the challengesof B2B markets, market entry barriers in B2B environment, different market entrystrategies and different types of market entry modes will be examined. Then, thedifferences between B2C and B2B pricing, different pricing techniques and pricing Tamur, O.
  • 6. 2framework in a new market will be highlighted. Next, market entry modes in aprofitability point of view, value creation in B2B environment and pricingbehaviour in the new market will be deliberated. Finally, key results and theconclusion will be stated. Tamur, O.
  • 7. 32 ENTERING NEW MARKETS IN B2B2.1 THE CHALLENGES OF B2B MARKETSThe intention to make profit is the most important characteristic when buyingproducts in B2B markets (Lyly-Yrjänäinen et al. 2010). Thus, purchasing process ismuch formal and takes longer time because of long price negotiations. Manycompanies tend to build long-term relationship to be able to derive their demandwhen needed. This long term relationship results in close personal relationshipswhich are difficult for competitors to break (Lyly-Yrjänäinen et al. 2010).According to Calhoun et al. (2007), segmentation is far more challenging in B2Bthan in consumer markets. Sales cycles are long, and offerings are complex.Moreover, many customers care less about initial product costs and more about thetotal costs of ownership, including service, maintenance, upgrades, and otherfactors. Competitors‟ offerings and strategies shift so quickly that managers cannotreliably compare the impact of changes in a given marketing lever over more thanone quarter of business. In addition, customer relationship management systemscannot easily capture the decisions and actions that led to success or failure withany particular account, because such information is largely anecdotal, notquantitative (Calhoun et al. 2007).Matthyssens et al. (2008) has examined the challenges in B2B marketing in termsof globalization. First challenge is delocalization of the customers. Asmultinational companies are moving their production and assembly units to low-labour cost countries, industrial suppliers and subcontractors see their home marketshrinking. Second, purchasing function is globalizing as the purchasers frommultinational companies seek global purchasing synergies (Quintens et al. 2006).Next, the importance of global networks is increasing (Harris and Wheeler 2005).Last, the fourth challenge faced by B2B companies is the transition to electronicforms of exchange. E-Internationalization is still challenging for companiesbecause they may lose their intellectual property on the web and B2B relationshipsare more difficult to manage in the electronic highway (Samiee 2008).Despite the above-mentioned challenges, more and more B2B companies expandtheir operations internationally since international activities are fundamental totheir performance (Katsiekas 2006). Tamur, O.
  • 8. 42.2 MARKET ENTRY BARRIERS IN B2BThe entry barriers refer to industry characteristics which result in requirements thatcompanies must meet in order to enter a certain sector (Lyly-Yrjänäinen et al.2010). Karakaya (2002) states that limited competition which is caused by marketentry barriers for new firms often increase the profits of incumbent firms in themarketplace. Thus, barriers to entry sometimes lead to monopoly conditions(Karakaya 2002). According to Karakaya (2002), barriers to entry in industrialmarkets are different than barriers to entry in consumer markets and they need to bedistinguished. He offers four major dimensions of entry barriers in industrialmarkets which are summarized in Table 1.Table 1. Market entry barriers in B2B environment (Karakaya 2002) Firm specific advantages Product differentiation Proprietary product technology  The brand identification advantage held Possessing strategic raw materials by incumbents Trade secrets held by incumbent firms  Customer loyalty Absolute cost advantages  Heavy advertising by firms already in Superior production processes the market  The expense of marketing a product  Customers costs in switching from one supplier to another  Access to distribution channels Financial requirements Profit expectations of the entering firms The capital requirements to enter  The magnitude of the market share held markets by incumbents The capital intensity of the market  The expected reaction of the The amount of sunk cost involved in incumbents to the arrival of a new entering a market player in the market The research and development expense  The number of firms in the market involved in market entry  The high profit rates earned by incumbents  The low prices charged by incumbentsSome of the costs of entry are sunk costs and become barriers to exit once enteredthe market (Karakaya 2002). Thus, the companies need to estimate the amount andtypes of costs exhaustively before making an entry decision. Tamur, O.
  • 9. 52.3 MARKET ENTRY STRATEGIESInternationalization and its impact on market entry is a strategic decision inglobalization (Liu and Cheng 2000). Thus, market entry strategy is considered asan important success factor while entering new markets. It is important tounderstand the customer preferences, business and management culture andregulations in foreign countries to be competitive and it is hard to find competentmanagers with the required skills in the international area (Lyly-Yrjänäinen 2010).The international market entry strategies can be analyzed with seven differenttheories:  Uppsala Model: Firms develop their activities abroad incrementally by developing their knowledge. This knowledge is called experiential knowledge and gained through personal experiences (Johanson and Vahlne 1977).  Eclectic Paradigm: Eclectic paradigm is based on the ownership-specific advantages. Market entry decisions are made in a rational manner by considering the costs of the transaction ( Dunning 1988).  Industrial Networks: This method supports that the international market entry decisions shouldn‟t be based on the entering firm only. As the whole industrial network that the firm is working with is affected by this decision, it should be analyzed with a more general view by considering the other firms in the industrial network.  Business Strategy: Business strategy method is based on market opportunities, firm resources and managerial philosophy. Unlike the other theories, business strategy is more focused on market opportunities than firm-based issues (Reid 1983).  The Agency Approach: The agency approach to entry mode selection is based on the principle of a contract where one party delegates to another. Franchises, licensing, joint venture and alliances are examples (Carney and Gedajlovic 1991).  The Bargaining Power Approach: The bargaining power approach sees the choice of entry mode as the outcome of negotiations between the firm and the government of the host country (Gomes-Casseres 1990).  The Transactional Cost Analysis Theory: Transactional cost analysis theory (TCA) is based on the theory that a firm will internationalize if it can perform at a lower transaction cost than if it exported or entered into a contractual arrangement with a local partner (Kumar and Subramanian 1997).These theories indicate diversity in internationalization process for a firm andprovide different emphases on the issue of international market entry (Whitelock Tamur, O.
  • 10. 62002). Thus, it is important to pick the right entry strategy by examining theposition and opportunities of the firm in the new market.2.4 MARKET ENTRY MODESAccording to Johnson and Tellis (2008), the mode of entry is a fundamentaldecision a firm makes when it enters a new market because the choice of entryautomatically constrains the firm‟s development strategy in the market. They listedmarket entry modes in five main groups which are illustrated in Figure 1. Figure 1. Market entry modesFour market entry modes that do not cover off-shoring are explained in detailsbelow:  Exporting: a firm‟s sales of goods/services produced in the home market and sold in the host country through an entity in the host country.  Agent: agents look for business opportunities abroad and take care of the negotiations between sellers and buyers.  Dealer: dealer is a distribution channel in a host country that purchases the products from the manufacturers and sells them to retailers.  Sales office: sales offices are owned by manufacturers and they take care of sales in the host country.In addition to the entry mode and strategy, the role of market entry timing is criticalas well in a new market entry decision (Pan and Chi 1999). The method used fortiming market entry mostly depends on depends on the type of product, theparticular market, the amount of competition and the budget available. The methodused may also involve a single strategy or a hybrid of different strategies.A first mover can benefit from risk-free consumers (Schmalensee 1982), berecognized as the industry standard (Carpenter and Nakamoto 1989), and preemptcompetition with broader product lines (Prescott and Visscher 1977). However,Golder and Tellis (1993) state that pioneers are not the long-term winners in amarket. It is suggested that this strategy works best in industries where product lifeis short, such as the high-tech industry.Entering a market late can have certain advantages as well, particularly if thepioneers have grown complacent or can no longer cater to a growing market, andalso, if the late arrival has an innovative way to market their product. Markets that Tamur, O.
  • 11. 7are already cluttered with products offer some opportunity for a late arrival that isof better quality or uses new delivery channels. Tamur, O.
  • 12. 83 PRICING IN B2B3.1 DIFFERENCES OF B2B AND B2C PRICINGAlthough pricing in B2B and retail markets have similar goals, they have differentkind of challenges (Valuckaite and Snieska 2007). In B2B environment, companiesmake purchasing decisions to make profit so this makes the purchasing decisionsmore risky. Thus, companies tend to form long-term relationships and agree on afixed-price with their suppliers.According to Valuckaite and Snieska (2007), even though retail companies have ahigh transaction volume, they have a relatively simple pricing calculation. In B2Bmarkets, customer is a firm and organizational purchasing is considered morecomplex than consumer purchasing (Valuckaite and Snieska 2007). Thus, B2Benvironment requires a combination of strategy, business process and technologyso that firms can capitalize ahead of their competitors and gain tremendouscompetitive advantage.Pricing decision in B2B markets has to involve currency considerations, marketshare dynamics, financial factors and the need that the price has to bepredetermined by the quality and price balance which are explained in details inTable 2.Table 2. Differences of B2B and B2C pricing (Valuckaite and Snieska 2007)Factor B2C B2BTransaction Volume High Low to HighPricing Data Accurate info Many resides in many systemsPricing Calculation Simple ComplexPricing Authority Centralized Distributed especially if sales team determines discountsPricing Levels Few Many reside in many systemsPace of Change Low Medium to HighAs described on the table above, B2B and B2C pricing differ from each other inmany aspects. In B2C, transaction volumes are high which in B2B is very volatileand may change from low to high. Pricing data has accurate info in B2C which inB2B resides in many different systems. Pricing calculation can be considered assimple in B2C environment but in B2B it is considered as a complex process. In Tamur, O.
  • 13. 9addition pricing authority is also centralized in B2C. However, In B2B it isdistributed as the sales team determines discounts in many cases. In addition topricing data, pricing levels reside in many systems in B2B as well which has veryfew levels in B2C environment. Last but not least, pace of change is very low inB2C but in B2B pace of change fluctuates from medium to high.3.2 PRICING TECHNIQUESPricing has a huge impact on profitability (Hinterhuber 2008). Thus, pricingstrategies should be evaluated methodically before setting the price of a product.Pricing is affected by different strategies that companies choose to operate in agiven market (Lyly-Yrjänäinen 2010). There are four pricing techniques that arecommonly used in different industries that are explained in Table 3 in details.Table 3. Commonly used pricing techniques (Lyly-Yrjänäinen 2010) It uses the value that a product or service delivers to a segment of customers as the main factor for setting pricesValue-based pricing (Hinterhuber 2008). Value-based pricing is increasingly recognised in the literature as superior to all other pricing strategies (Ingenbleek et al. 2003). It uses anticipated or observed price levels of competitors as primary source for setting prices (Hinterhuber 2008).Market-based pricing The main weakness of market-based pricing is that it doesn‟t take customers willingness to pay into account. It is based on the data from cost accounting (HinterhuberCost-plus pricing 2008). It leads to lower-than-average profitability in many cases (Simon et al. 2003). It is more used in investment goods where companies askNegotiation pricing for bid from several potential suppliers (Lyly-Yrjänäinen 2010).According to Holden and Burton (2008), there are three basic pricing models in anew market:  Skim pricing  Neutral pricing  Penetration pricing Tamur, O.
  • 14. 10First, skim pricing means that prices are set high relative to mainstream competitorsto maximize revenues generated from the high end of the market (Holden andBurton 2008). It is mostly used to maximize revenues and product differentiation isan important success driver in this method. Stubbornly sticking to skim pricingcreates market opportunities for new competitors (Holden and Burton 2008).Second, neutral pricing can be identified as prices are set close to those of yourmain competitors (Holden and Burton 2008). Companies use this method to reducethe impact of price competition against a market leader. A neutral pricing strategyis also the best choice when markets are growing slowly or not at all (Holden andBurton 2008). Third, penetration pricing can be stated as prices are set quite lowrelative to the competition to make price a driving factor in the purchase decision(Holden and Burton 2008). It is mainly used to capture reasonable market share andto increase product recognition in the eyes of potential customers. The mainproblem in penetration pricing is that price cuts are easy for competitors to matchas well in many cases so when they do, no competitor sees an increase in eithersales or share (Holden and Burton 2008).3.3 PRICING FRAMEWORK IN A NEW MARKETAccording Brennan et al. (2007), although cost-plus pricing is often used in B2Bmarkets it has the serious drawback that it ignores both customer price sensitivityand potential competitor action. Most B2B markets are oligopolies so that there isan ever-present risk of a price-war if any of the competitors engage in aggressiveprice-cutting. Firms should be encouraged to think of pricing as a continuousprocess rather than a once-off decision (Brennan et al. 2007).Even though value-based pricing has some obstacles in value assessment andcommunication in the implementation period, it is known as the most efficient wayof pricing in the current business environment and has an increasing trend in themarket (Hinterhuber 2007). Companies want to assess the value they offer to theircustomers with their products so that they can keep on developing and customizingtheir offer to the customer needs. However, in a new market entry companies needto take competitive dynamics in the new market into consideration and price theirproduct accordingly. Thus, the pricing in a new market should be capable ofconsidering the value created to its users and be sensitive to the competition levelin the market. The framework for pricing in a new market is illustrated in Figure 2. Tamur, O.
  • 15. 11 Figure 2. Pricing framework in a new marketThe basic understanding of competitors and the level of competition form a greatadvantage for a new entrant in a market to deduce the right pricing model whichare mentioned above. As the first intention is to make profit in B2B environment,companies need to create value both for their organizations and their customers.Thus, it is very important to analyze the market thoroughly before the entrydecision and evaluate if they want to skim, stay neutral or penetrate the market. Ifthese methods are used efficiently, it is highly possible that the entrant can be astrong player in the market and capture a satisfactory market share. Tamur, O.
  • 16. 124 PRICING IN A NEW MARKET IN B2B ENVIRONMENT4.1 MARKET ENTRY MODES IN TERMS OF PROFITABILITYThere are five different market entry modes that are exporting, licensing, alliance,joint venture and wholly owned subsidiary which are explained in details inChapter 2.4. Each way is different in terms of commitment, risk, control and profitpotential. As the involvement and degree of control increase, the profitabilitypotential also increases. Johnson and Tellis (2008) state that the higher the resourcecommitment and desired control of an entry mode, the higher is the cost whichrequires higher levels of investments (Johnson and Tellis 2008). Figure 3. Analysis of different market entry modes in terms of risk and profit potential.International diversification through foreign market entry can result in high growthand profitability unavailable in home markets (Root 1994). However, matchingstrategy and the appropriate form of entry mode is a big challenge for companies(Lee and Carter 2005). It is highly possible that a company needs to combinemultiple techniques to enter a host country and be successful. Tamur, O.
  • 17. 134.2 VALUE CREATION IN B2BEven though one of the characteristics in B2B markets is that the use of direct saleschannels, many industrial companies use different types of intermediaries as wellwhich are agents and distributors (Lyly-Yrjänäinen 2010). For large customers,mostly direct sale method is being used. If the volumes are not that high,manufacturers use a distributor who stores their products and delivers them to theend customers whenever they need and with the use of market intermediaries, thenumber of customer relationships that the manufacturers need to manage can bereduced dramatically (Lyly-Yrjänäinen 2010). Figure 4. Basic idea of contribution margin when selling to different customers.According to Lyly-Yrjänäinen (2010), distributors take care of various activitiesthat reduce the costs of the manufacturer and therefore no longer need to becovered by contribution margin. The activities covered by distributors can be listedin four main points:  Providing a sales force to sell the goods to other buyers  Communicating the manufacturers‟ marketing message to the customers and providing market information to the manufacturer  Maintaining inventory, thus reducing the level of the inventories manufacturers need to carry  Arranging the transportation to the customers Tamur, O.
  • 18. 14 Figure 5. The effect of sales volume on the end-customer price and distributor’s priceThe discounts are also usually related to the volume of each distributor and largervolumes provide larger discounts (Lyly-Yrjänäinen 2010). Thus, the sizes of thedistributors and sales volume have a huge impact on the final price of the productin B2B environment.4.3 PRICING BEHAVIOUR IN A NEW MARKETPricing behaviour in a new market is highly dependent on the market dynamics thatexist in the host country. Thus, it is important to make a deep analysis on themarket by considering the pricing framework which is explained in details inChapter 3.3 and its effect on market entry mode that is being used by themanufacturer. In the figures below, profit margins of different market entry modesthat does not cover off-shoring are compared by using a fixed price for the productso that the flexibility of the manufacturer in pricing can be highlighted easier. InFigure 6, pricing structure for exporting explained in details. Tamur, O.
  • 19. 15 Figure 6. Pricing structure while exportingAs illustrated in the figure above, exporting does not provide wide price range forthe product in the new market because of its high contribution costs to themanufacturer. It is possible to use skim pricing in new market to increase thepossible profit margin if the product being offered is differentiated. It is hard for amanufacturer to use penetration pricing strategy while exporting a product becauseprofit margin is very limited. However, exporting is widely used by manufacturersby entering a new market as it is easier and less risky for the manufacturer toexport their product from the home country. In Figure 7, pricing structure in thenew market by using agents is highlighted. Figure 7. Pricing structure while using agentsAgents are also widely used by manufacturers as a market entry tool. They operatein the home country of the manufacturer and help them to find potential customers Tamur, O.
  • 20. 16for the products available. As they work for the manufacturer, they decrease thecontribution costs of the manufacturer but they take commission from the sales.Thus, it is still hard for a manufacturer to implement penetration pricing strategybecause of the limited profit margin remaining after considering the costs. InFigure 8, the pricing structure by using dealers is highlighted. Figure 8. Pricing structure while using dealersDealers are also widely used by manufacturers who want to sell their products in anew market. They are very efficient because they have a wide knowledge about thelocal market and experience about the potential customers for the product offering.They decrease the contribution costs of the manufacturer by taking over some ofthe responsibilities that belong to the manufacturer in exporting so thatmanufacturers have the possibility to be more flexible about the pricing of theirproduct. They can either lower their prices and use penetration strategy or use skimpricing to keep a high profit margin. In Figure 9, pricing structure by using salesoffice is discussed. Tamur, O.
  • 21. 17 Figure 9. Pricing structure while using sales officeSales offices are the most profitable option for manufacturers to have businessactivities in a host country. By using the local experience and knowledge of thesales team, manufacturers directly decrease the contribution costs of their productand as manufacturers do not work with another market intermediates anymore inthe host country, manufacturers do not need to pay any fee to them as well. Thisprovides endless opportunities for the manufacturers in terms of pricing theirproduct flexibly in the new market thanks to the wide range of profit marginprovided by the low costs compared to the previous market entry modes in terms ofusing skim, neutral and penetration pricing strategies without a doubt. However,having a sales office in a host country requires a big initial investment from themanufacturers which might be hard to be followed by small or mediocre firms.Thus, it is important to have high sales volume in the host company to be able tobenefit from the sales office efficiently. Tamur, O.
  • 22. 185 CONCLUSIONGlobalization trend has enabled new business opportunities for all companiesaround the world. Many companies pursue new markets around the globe wherethey can expand their brand recognition and sales volumes. However, In B2Benvironment there has not been a wide research on pricing which can orientateorganizations to take their pricing decisions in the market.The objective of this paper was to highlight the importance of market entrystrategies and their effect on pricing decision in the new market by considering themarket entry mode used. B2B environment has many different aspects compared toB2C and these issues should be examined carefully before becoming a globalplayer and making an entry decision into a new market.Based on this research, this paper examines the challenges and different aspects ofB2B environment, possible market entry strategies and market entry modes whileentering a new market and pricing techniques that can be implied in the newmarket. Unlike B2C, B2B markets have many aspects to be taken intoconsideration while making a market entry decision by considering the marketentry mode used in the entry. Also, market intermediates take an important role inpricing in B2B environment because they take care of various activities and reducethe costs of manufacturers which lead to special discounts to intermediatesdepending on the size and sales volumes to the end customers.Finally this paper supports that the pricing decision in a new market should betaken by considering the competitors and competition in the market. It suggeststhree models which are skim pricing, neutral pricing and penetration pricing andthey should be used according to the market conditions in the market and marketentry mode that is applicable in the environment. Tamur, O.
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