© 2005 Prentice Hall11-1 Chapter 11 Pricing Decisions Power Point By Kristopher Blanchard North Central University.

© 2005 Prentice Hall 11-1

Chapter 11 Pricing Decisions

Power Point By

Kristopher BlanchardNorth Central University


managing marketing

from global headquarters

©2005 Dr.Gerard Ryan, Universitat Rovira i Virgili.

International Marketing Mix DecisionsStrategic 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.


InternationalInternationalPricingPricing

StrategiesStrategies

AnalyticDimensions

Decision-Making

Decision-Making

Company InternalFactors

ProfitabilityTransports CostsTariffsTaxesProduction CostsChannel Costs

International Pricing StrategiesInternational Pricing Strategies

Market Factors

Income LevelsCompetition

Customers’ Culture

EnvironmentalFactors

Foreign Exchange RatesInflation RatesPrice ControlsRegulations

Market-by-MarketPricing Uniform Pricing

ManagerialIssues

Transfer PricingForeign CurrenciesParallel Imports/Grey MarketsExport Price EscalationGlobal Pricing Strategies

Financing InternationalTransaction

RisksCustomer-Arranged vs.Supplier-Arranged

Source of Financing

Commercial BanksGovernmentsNon-cash Transactions:Counter-trading

Source: Jeannet & Hennessey, 2001


The Gaps that the Euro Could ClosePrices on selected goods and services (1998!)

The Gaps that the Euro Could ClosePrices on selected goods and services (1998!)

Belgium France Germany Italy Spain

1.5 litre bottle of Coca Cola 2.05 1.05 1.89 1.65 1.14

Big Mac 2.86 3.08 2.67 2.48 2.38

VW Golf GLa 13,553 16,317 13,999 17,056 17,356

Unleaded petrol per litre 0.93 1.03 0.87 0.94 0.73

Dry cleaning man’s shirt 3.68 4.67 2.43 2.75 2.92

Underground or bus ticket 1.32 1.20 2.10 0.83 0.82

Pair of Levi 501 jeans 71 83 81 69 70

Compaq Pressario computer b 1,316 1,348 917 1,208 1,267

1 day car rental c 154 110 103 243 113

1 hour of translation 89 104 78 55 39

All prices in 1998 US$

a Two door modelb Model 4504 in Spain, 2240 elsewherec Mercedes C-class without insurance

Cateora & Ghauri, International Marketing, European Edition, © 2000 McGraw-Hill


managing marketing

from global headquarters

©2005 Dr.Gerard Ryan, Universitat Rovira i Virgili.

International Marketing Mix DecisionsStrategic 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 2.54Argentina Peso2.50 2.50 0.98 1.00 -2Australia A$3.00 1.52 1.18 1.98 -40Brazil Real3.60 1.64 1.42 2.19 -35Britain £1.99 2.85 1.28** 1.43** 12Canada C$3.33 2.14 1.31 1.56 -16Chile Peso1260 2.10 496 601 -17China Yuan9.90 1.20 3.90 8.28 -53Czech Rep Koruna56.00 1.43 22.00 39.0 -44Denmark DKr24.75 2.93 9.74 8.46 15Euro 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 -18Hong Kong HK$10.70 1.37 4.21 7.80 -46Hungary Fo399 1.32 157 303 -48Indonesia Rupiah14700 1.35 5787 10855 -47Japan 294 2.38 116 124 -6Malaysia M$4.52 1.19 1.78 3.80 -53Mexico Peso21.9 2.36 8.62 9.29 -7New Zealand NZ$3.60 1.46 1.42 2.47 -43Philippines Peso 59.00 1.17 23.2 50.3 -54Poland Zloty5.90 1.46 2.32 4.03 -42Russia Rouble35.00 1.21 13.8 28.9 -52Singapore S$3.30 1.82 1.30 1.81 -28South Africa Rand9.70 1.19 3.82 8.13 -53South Korea Won3000 2.27 1181 1325 -11Sweden SKr24.0 2.33 9.45 10.28 -8Switzerland SFr6.30 3.65 2.48 1.73 44Taiwan NT$70.0 2.13 27.6 32.9 -16Thailand Baht55.0 1.21 21.7 45.5 -52

The Hamburger StandardThe 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 Questions1. 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_%28pricing_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, Regulations

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 countriesTo 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 highVertical 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 jurisdictionIntra-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?

© 2005 Prentice Hall11-1 Chapter 11 Pricing Decisions Power Point By Kristopher Blanchard North Central University.

Documents

prentice hall11

global pricing objectives

pricing options

international market

market penetration

companys global pricing

basic pricing concepts

rigid costplus pricing