TM 11
Pricing Decisions
managing marketing
from global headquarters
International Marketing Mix Decisions
Strategic Alternatives in international and global marketing mix decisions. Managerial issues
International Pricing considerations
Global pricing is one of the most critical and complex issues in international marketing.
Price is the only marketing mix instrument that creates revenues. All other elements entail costs.
A company’s global pricing policy may make or break its overseas expansion efforts.
Multinationals also face the challenges of how to coordinate their pricing across different countries.
International International
Pricing Pricing Strategies Strategies Analytic
Dimensions
Decision- Making
Decision- Making
Company Internal Factors
Profitability
Transports Costs Tariffs
Taxes
Production Costs Channel Costs
International Pricing Strategies International Pricing Strategies
Market Factors Income Levels Competition Customers’ Culture
Environmental Factors Foreign Exchange Rates
Inflation Rates Price Controls Regulations
Market-by-Market
Pricing Uniform Pricing
Managerial Issues Transfer Pricing Foreign Currencies Parallel Imports/Grey Markets
Financing International Transaction
Risks
Customer-Arranged vs.
Supplier-Arranged
Source of Financing Commercial Banks Governments
Non-cash Transactions:
Counter-trading
The Gaps that the Euro Could Close
Prices on selected goods and services (1998!)
The Gaps that the Euro Could Close
Prices on selected goods and services (1998!)
All prices in 1998 US$
a Two door model
b Model 4504 in Spain, 2240 elsewhere
managing marketing
from global headquarters
International Marketing Mix Decisions
Strategic Alternatives in international and global marketing mix decisions. Managerial issues
Prices for a
Volkswagen Golf*
BRITAIN $13,040 FINLAND 8,290 FRANCE 10,510 GERMANY 11,040
ITALY 10,690
International Pricing comparisons
United States*** $2.54 2.54
Argentina Peso2.50 2.50 0.98 1.00 -2
Australia A$3.00 1.52 1.18 1.98 -40
Brazil Real3.60 1.64 1.42 2.19 -35
Britain £1.99 2.85 1.28** 1.43** 12
Canada C$3.33 2.14 1.31 1.56 -16
Chile Peso1260 2.10 496 601 -17
China Yuan9.90 1.20 3.90 8.28 -53
Czech Rep Koruna56.00 1.43 22.00 39.0 -44
Denmark DKr24.75 2.93 9.74 8.46 15
Euro area 2.57 2.27 0.99 € 0.88 € -11
France FFr18.5 2.49 7.28 7.44 -2
Germany DM5.10 2.30 2.01 2.22 -9
Italy Lire4300 1.96 1693 2195 -23
Spain Pta395 2.09 156 189 -18
Hong Kong HK$10.70 1.37 4.21 7.80 -46
Hungary Fo399 1.32 157 303 -48
Indonesia Rupiah14700 1.35 5787 10855 -47
Japan 294 2.38 116 124 -6
Malaysia M$4.52 1.19 1.78 3.80 -53
Mexico Peso21.9 2.36 8.62 9.29 -7
New Zealand NZ$3.60 1.46 1.42 2.47 -43
Philippines Peso 59.00 1.17 23.2 50.3 -54
Poland Zloty5.90 1.46 2.32 4.03 -42
Russia Rouble35.00 1.21 13.8 28.9 -52
Singapore S$3.30 1.82 1.30 1.81 -28
South Africa Rand9.70 1.19 3.82 8.13 -53
South Korea Won3000 2.27 1181 1325 -11
Sweden SKr24.0 2.33 9.45 10.28 -8
Switzerland SFr6.30 3.65 2.48 1.73 44
Taiwan NT$70.0 2.13 27.6 32.9 -16
Thailand Baht55.0 1.21 21.7 45.5 -52
The Hamburger Standard
The Hamburger Standard Under (-)/
over (+) valuation Local Currency Dollars Implied PPP* Actual $ exchange against the of the dollar rate 17/04/01 dollar % Under (-)/
over (+) valuation Local Currency Dollars Implied PPP* Actual $ exchange against the of the dollar rate 17/04/01 dollar %
Basic Pricing Concepts
The Global Manager must develop systems and policies that address
– Price Floors – Price Ceilings – Optimum Prices
Must be consistent with global opportunities and constraints
Global Pricing Objectives and
Strategies
Managers must determine the objectives for the pricing objectives– Unit Sales – Market Share
– Return on investment
They must then develop strategies to achieve those objectives
– Penetration Pricing – Market Skimming
Market Skimming and Financial
Objectives
Market Skimming
– Charging a premium price
– May occur at the
introduction stage of product life cycle
Sony Ad. for camcorders
Penetration Pricing and Non-Financial
Objectives
Penetration Pricing
– Charging a low price in order to penetrate
market quickly
– Appropriate to saturate market prior to
imitation by competitors
1979 Sony Walkman
Companion Products
Products whose sale is
dependent upon the sale of primary product
– Video games are dependent upon the sale of the game Console
“If you make money on the blades you can give away the razors.”
X-Box Game System and Sports Game
Target Costing – 8 Questions
1. Does the price reflect the product’s quality?
2. Is the price competitive given local market conditions?
3. Should the firm pursue market penetration, market skimming, or some other pricing objective?
4. What type of discount (trade, cash, quantity) and allowance (advertising, trade-off) should the firm offer its international customers?
5. Should prices differ with market segment?
6. What pricing options are available if the firm’s costs
increase or decrease? Is demand in the international market elastic or inelastic?
7. Are the firm’s prices likely to be viewed by the host- country government as reasonable or exploitative?
8. Do the foreign country’s dumping laws pose a problem?
Dumping
In international trade, this occurs when one country exports a significant amount of
goods to another country at prices much lower than in the domestic market
http://en.wikipedia.org/wiki/Dumping_%28 pricing_policy%29
Target Costing
Cost-Based Pricing is based on an analysis of internal and external cost
Firms using western cost accounting principles use the Full absorption cost method
– Per-unit product costs are the sum of all past or current direct and indirect manufacturing and overhead costs
Target Costing
Rigid cost-plus pricing means that
companies set prices without regard to the eight foundational pricing considerations Flexible cost-plus pricing ensures that
prices are competitive in the contest of the particular market environment
Terms of the Sale
Incoterms make international trade easier and help traders in different countries to understand one another. These standard trade definitions that are most commonly used in international contracts are protected by ICC copyright
– Ex-works – seller places goods at the disposal of the buyer at the time specified in the contract; buyer takes delivery at the premises of the seller and bears all risks and expenses from that point on.
– Delivery duty paid – seller agrees to deliver the goods to the buyer at the place he or she names in the country of import with all costs, including duties, paid.
Environmental Influences on Pricing Decisions
Currency Fluctuations
Inflationary Environment
Government Controls, Subsidies, Regulatio ns
Competitive Behavior Sourcing
Global Pricing:
Three Policy Alternatives
Extension Adaptation Geocentric
Gray Market Goods
Trademarked products are exported from one country to another where they are sold by unauthorized persons or organizations Occurs when product is in short supply,
when producers use skimming strategies in some markets, and when goods are subject to substantial mark-ups
Dumping
Sale of an imported product at a price lower than that normally charged in a domestic market or country of origin.
Occurs when imports sold in the US market are priced at either levels that represent less than the cost of production plus an 8% profit margin or at levels below those prevailing in the producing countries
To prove, both price discrimination and injury must be shown
Price Fixing
Representatives of two or more companies secretly set similar prices for their products
– Illegal act because it is anticompetitive
Horizontal price fixing occurs when competitor within an industry that make and market the same product conspire to keep prices high
Vertical price fixing occurs when a manufacture conspires with wholesalers/retailers to ensure certain retail prices are maintained
Transfer Pricing
Pricing of goods, services, and intangible property bought and sold by operating units or divisions of a company doing business with an affiliate in another jurisdiction
Intra-corporate exchanges
– Cost-based transfer pricing – Market-based transfer pricing – Negotiated transfer pricing
Countertrade
Countertrade occurs when payment is made in some form other than money
Options – Barter
– Counter-purchase – Offset
– Compensation trading – Cooperation agreements – Switch trading
Barter
The least complex and oldest form of bilateral, non-monetary counter-trade A direct exchange of goods or services between two parties
Looking Ahead
Chapter 12 Global Marketing Channels and Physical Distribution
Incoterms
FAS (free alongside ship) named port of destination – seller places goods alongside the vessel or other mode of transport and pays all charges up to that point
FOB (free on board) – seller’s responsibility does not end until goods have actually been placed aboard ship
CIF (cost, insurance, freight) named port of destination – risk of loss or damage of goods is transferred to buyer once goods have passed the ship’s rail
CFR (cost and freight) – seller is not responsible at any point outside of factory
Return
Extension
Ethnocentric
Per-unit price of an item is the same no matter where in the world the buyer is located
Importer must absorb freight and import duties
Fails to respond to each national market
Return
Adaptation
Polycentric
Permits affiliate managers or independent distributors to establish price as they feel is most desirable in their circumstances
Sensitive to market conditions but creates potential for gray marketing
Return
Geocentric
Intermediate course of action
Recognizes that several factors are relevant to pricing decision
– Local costs – Income levels – Competition
– Local marketing strategy
Return
Currency Fluctuations
Return
Inflationary Environment
Defined as a persistent upward change in price levels
– Can be caused by an increase in the money supply
– Can be caused by currency devaluation
Essential requirement for pricing is the maintenance of operating margins
Return
Government Controls, Subsidies, and Regulations
The types of policies and regulations that affect pricing decisions are:
– Dumping legislation
– Resale price maintenance legislation – Price ceilings
– General reviews of price levels
Return
Competitive Behavior
If competitors do not adjust their prices in response to rising costs it is difficult to
adjust your pricing to maintain operating margins
If competitors are manufacturing or
sourcing I a lower-cost country, it may be necessary to cut prices to stay competitive
Return
Using Sourcing as a Strategic Pricing Tool
Marketers of domestically
manufactured finished products may move to offshore sourcing of certain components to keep costs down and prices competitive
Return
Can you stay competitive while staying local?