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Second, he should find out with great accuracy the laid-down prices of the products in the countries in which it is desired to sell.
Third, there should be a determination that business is going to be obtained anyway, provided it can be negotiated at prices which will yield a profit. This latter is important, and the moral is that the price structure must be flexible enough to accomplish it.
In those cases where initial business is being negotiated, the decision should be made as to whether the potential market is such that it is worth while taking a loss in price on some commodities, or in selling expense on others,
on the initial orders, charging this temporary loss up to trade promotion.
FLEXIBLE PRICE POLICY
Great care should be exercised in the establishment of effective agencies or branch offices as dictated by the needs of the situation either in respect to product or market. But, in any case, the policy that should rule is one of throwing the onus for the loss of business back to the home office. It will be found that, when such a policy is followed, an extraordinary degree of activity on the part of the branch or agency can be demanded, especially if every request for a reduction in price must be based on an accurate statement of the price and terms at which the competition is offering its products.
A DETAILED ANALYSIS OF COMPETITIVE FACTORS
Usually, when asking an agent or special representative on the spot for an estimate of the competitive situation, most concerns ask the same questions. These may preferably be embodied in letter form, but the gist of what is asked is as follows:
GENERAL MARKET ANALYSIS: QUESTIONNAIRE
1. How much of the product is produced locally?
What sales territories?
To the retailer?
To the wholesaler or jobber? 6. Is it advertised?
Through what media ?
To the wholesaler or jobber?
Reasons. 8. What credit, shipping, and finance terms are demanded by local distributors?
Granted by other manufacturers-American and foreign? 9. Is the product stocked ?
By retailers ?
By importers or branch houses?
In the trade?
How are they determined ?
12. Is servicing a factor in sales? 13. Are sole agencies desirable?
Should there be general distribution? 14. What is the exchange situation in its effect on general price structure?
On the release of foreign exchange? 15. Is the product subject to special taxation of any kind?
Consumption? Sales? The above questions may be supplemented by questions on installment sales in the case of motorcars, machinery, etc.; on consignment sales in the case of certain types of raw materials; on methods of bidding in the case of equipment purchased by governments, States, municipalities, public utilities, and large industrial concerns.
SAMPLES AND FOREIGN CATALOGS
The most effective method of judging the force and character of foreign competition is to obtain samples of the products being imported from other countries, with prices and terms of sale. Where this is impracticable, copies of foreign catalogs can easily be obtained from the trade, and the American manufacturer can thus familiarize himself thoroughly with the type of competition with which he will have to deal.
PRICES OF FOREIGN PRODUCTS It must be remembered that many elements enter into the competitive price structure, in any given market. Low wages paid by foreign competitors may be offset by high costs of transportation of raw materials. Preferential export freight rates may be offset by higher ocean freight rates, by reason of distance from the market or higher cost of operating the merchant marine, or because of lack of adequate shipping facilities. Over all may hang the pall of fluctuating prices for export, dictated by unstable exchange either as a favorable or unfavorable factor from the point of view of the American exporter. Excessive production or other economic considerations at home may necessitate dumping or "near dumping," which may be only a temporary phenomenon. Taxation due to budgetary deficits may be a direct handicap. On the other hand, past or current loans by a competitor's government in a given market may tend to retard or facilitate the sale of goods.
THE ART OF DISTRIBUTION
Many of our export problems revolve about our inability to master the art of distributing our products under the special and peculiar competitive conditions encountered abroad. The terms of payment demanded by our customers abroad are usually not arbitrary demands but are based upon the terms they are receiving from our competitors. They usually have a sound economic foundation in the peculiar conditions surrounding a given market. There is a reason why goods are sold cash against documents in Denmark while 120 to 180 days after acceptance is requested in Chile. The basic reason for credit extension is the time required to get the goods into the hands of the ultimate distributors. Competition in terms as well as price and quality must, therefore, always be taken into account.
Other competitive factors affecting distribution are tariffs, quotas, exchange restrictions, and treaties, which may give preferences to our competitors. These must all be taken into consideration in estimating the comparative strength of a product in any market. The ultimate test of foreign competition is reflected in the laid-down cost of any foreign product as compared with our laid-down costs-quality for quality. If the innumerable favorable and unfavorable factors in each case tend to balance out, then we have a market. If they do not, it is useless to try to compete. The difference between success or failure in any venture, however, lies in the thoroughness with which these factors have been analyzed and evaluated. Only in this way can we measure accurately the strength of our competition.