Operating risk in foreign exchange operations can be negotiated ably through marketing management strategies as well. These are: market selection, product strategy, pricing strategy and promotion strategy.
Market Selection:
Impact of exchange rate fluctuations on operating profit can be dealt through right mix of markets. Major strategic operations for an exporter are the markets in which to sell and the relative marketing support to devote to each market. Marketing management must take into account its economic risk and selectivity, adjust the marketing support, on a nation-by-nation basis, to maximize long-term profit. From the perspective of non-US companies, the strong U.S. dollar is a golden opportunity to gain market share at the expense of their U.S rivals.
It is also necessary-to consider the issue of market segmentation within individual countries. A firm that sells differentiated products to more affluent customers may not be harmed as much by foreign currency devaluation. On the other hand, following a depreciation of the home currency a firm that sells primarily to upper-income groups may find it now easier to penetrate mass markets abroad. Market selection and market segmentation provide the basic parameters within which a company may adjust its marketing mix over time.
Product Strategies:
Product portfolio, product introduction, product withdrawals, etc., are certain product strategies to deal with operating risk.
Exchange rate fluctuations may affect the timing of the introduction of new products. A firm must devise a strategy for new product introduction as a function of its relative risk in different markets. The period after a home currency devaluation or foreign currency revaluation may be the ideal time to introduce a new product overseas.
Similarly, product deletion decisions, as products become obsolete or fall into consumer disfavor, may be influenced by exchange risk considerations. Firms might stop producing these goods if a home currency revaluation or foreign currency devaluation to likely.
Pricing Strategies:
A firm selling overseas should follow the standard economic proposition of setting the price that maximizes home currency profits (by equating marginal revenues and ‘marginal costs). In making this determination, however, profits should be translated using the forward exchange rate that reflects the true expected home currency value of the receipts upon collection. In the wake of foreign currency devaluation, a firm selling in that market should consider opportunities to increase the foreign currency prices of its products.
Promotion Strategy:
Promotional strategy should similarly take into account anticipated exchange rate changes. A key issue in any marketing program is the size of the promotional budget for advertising, personal selling, and merchandising. Promotional decisions should explicitly build in exchange rates, especially in allocating budgets among countries.
A firm exporting its products after a domestic devaluation may well find that the return per dollar expenditure on advertising or selling is increased as a function of the product’s improved price positioning. The exporter may also find it has improved its ability in “push” the product based on the option of greater distribution margins or consumer dealing.