Answer to Question 1
There are two general promotional strategies that companies can use to get their marketing message across to buyers. They can rely completely on just one of these or use them in combination. A promotional strategy designed to create buyer demand that will encourage channel members to stock a company's product is called a pull strategy. In other words, buyer demand is generated in order to pull products through distribution channels to end users. Creating consumer demand through direct marketing techniques is a common example of a pull strategy.
By contrast, a push strategy is a promotional strategy designed to pressure channel members to carry a product and promote it to final users. Manufacturers of products commonly sold through department and grocery stores often use a push strategy.
Whether the push or pull strategy is most appropriate in a given marketing environment depends on several factors:
Distribution System-Implementing a push strategy can be difficult when channel members (such as distributors) wield a great deal of power relative to that of producers. It can also be ineffective when distribution channels are lengthy: the more levels of intermediaries there are, the more channel members there are who must be convinced to carry a product. In such cases, it might be easier to create buyer demand using a pull strategy than to persuade distributors to stock a particular product.
Access to Mass Media-Developing and emerging markets typically have fewer available forms of mass media for use in implementing a pull strategy. Accordingly, it is difficult to increase consumer awareness of a product and generate product demand. Many consumers in these markets cannot afford cable or satellite television, or perhaps even glossy magazines. In such cases, advertisers might turn to billboards and radio. At other times, gaining wide exposure can be difficult because existing media have only local, as opposed to national, reach.
Type of Product-A pull strategy is most appropriate when buyers display a great deal of brand loyalty toward one particular brand name. In other words, brand-loyal buyers know what brand of a product they want before they go shopping. On the other hand, push strategies tend to be appropriate for inexpensive consumer goods characterized by buyers who are not brand loyal. Low brand loyalty means that a buyer will go shopping for a product, not knowing which brand is best, and simply will buy one of those carried by the retailer or wholesaler. A push strategy is also suited to industrial products because potential buyers usually need to be informed about a product's special features and benefits.
Answer to Question 2
In the earliest days of international trade, gold was the internationally accepted currency for payment of goods and services. Using gold as a medium of exchange in international trade has several advantages. First, the limited supply of gold made it a commodity in high demand. Second, because gold is highly resistant to corrosion, it can be traded and stored for hundreds of years. Third, because it can be melted into either small coins or large bars, gold is a good medium of exchange for both small and large purchases.
But gold also has its disadvantages. First, the weight of gold made transporting it expensive. Second, when a transport ship sank at sea, the gold sank to the ocean floor and was lost. Thus merchants wanted a new way to make their international payments without the need to haul large amounts of gold around the world. The solution was found in the gold standardan international monetary system in which nations linked the value of their paper currencies to specific values of gold. Britain was the first nation to implement the gold standard in the early 1700s.
The gold standard required a nation to fix the value (price) of its currency to an ounce of gold. The value of a currency expressed in terms of gold is called its par value. Each nation then guaranteed to convert its paper currency into gold for anyone demanding it at its par value. The calculation of each currency's par value was based on the concept of purchasing power parity. This provision made the purchasing power of gold the same everywhere and maintained the purchasing power of currencies across nations.
All nations fixing their currencies to gold also indirectly linked their currencies to one another. Because the gold standard fixed nations' currencies to the value of gold, it is called a fixed exchange-rate systemone in which the exchange rate for converting one currency into another is fixed by international governmental agreement. This system and the use of par values made calculating exchange rates between any two currencies a very simple matter.
The gold standard was quite successful in its early years of operation. In fact, this early record of success is causing some economists and policy makers to call for its rebirth today. Three main advantages of the gold standard underlie its early success.
First, the gold standard drastically reduces the risk in exchange rates because it maintains highly fixed exchange rates between currencies. Deviations that do arise are much smaller than they would be under a system of freely floating currencies. The more stable exchange rates are, the less companies are affected by actual or potential adverse changes in them. Because the gold standard significantly reduced the risk in exchange rates and, therefore, the risks and costs of trade, international trade grew rapidly following its introduction.
Second, the gold standard imposes strict monetary policies on all countries that participate in the system. Recall that the gold standard requires governments to convert paper currency into gold if demanded by holders of the currency. If all holders of a nation's paper currency decided to trade it for gold, the government must have an equal amount of gold reserves to pay them. That is why a government cannot allow the volume of its paper currency to grow faster than the growth in its reserves of gold. By limiting the growth of a nation's money supply, the gold standard also was effective in controlling inflation.
Third, the gold standard can help correct a nation's trade imbalance. The exact opposite occurs in the case of a trade surplus: The inflow of gold supports an increase in the supply of paper currency, which increases demand for, and therefore the cost of, goods and services. Thus exports will fall in reaction to their higher price until trade is once again in balance.
Collapse of the Gold Standard-Nations involved in the First World War needed to finance their enormous war expenses, and they did so by printing more paper currency. This certainly violated the fundamental principle of the gold standard and forced nations to abandon the standard. The aggressive printing of paper currency caused rapid inflation for these nations. When the United States returned to the gold standard in 1934, it adjusted its par value from 20.67/oz of gold to 35.00/oz to reflect the lower value of the dollar that resulted from inflation. Thus the U.S. dollar had undergone devaluation. Yet Britain returned to the gold standard several years earlier at its previous level, which did not reflect the effect inflation had on its currency.
Because the gold standard links currencies to one another, devaluation of one currency in terms of gold affects the exchange rates between currencies. The decision of the United States to devalue its currency and Britain's decision not to do so lowered the price of U.S. exports on world markets and increased the price of British goods imported into the United States. People quickly lost faith in the gold standard because it was no longer an accurate indicator of a currency's true value. By 1939, the gold standard was effectively dead.
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