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Pricing policy.
The more company has control over the final selling price of the product the ,
better it is able to achieve its marketing objectives.
It is always not possible to control end price.
Pricing policy.
As a static element in a business decision.
Companies use this when their foreign marketing
is not a priority.
Usually associated with trying to get rid of excess
inventories.
B. Parallel Imports.
When a manufacturing country sells its product
to a specific country, and these products are
further sold to another unintended country.
Grey market situation can occur.
Pricing policy.
C. Exclusive Distribution.
Where manufacturers select preferred distributors
to sell its products at premium prices in order to
Maintain high profit margins, stock large
assortments, and to maintain the exclusive
quality image. They also contribute to parallel
imports.
Pricing policy
Approaches to International pricing.
Full cost v/s Variable cost.
Full cost is determined by combining total cost plus a
profit margin to every unit.
Every unit must bear the total cost including
international units sold.
Variable cost.
Variable cost is determined through the incremental
cost associated with producing goods for selling them
in international market. This can appear to be dumping.
Pricing policy
Approaches to International pricing.
Skimming v/s penetration pricing.
Skimming is used when market place is insensitive to
price. There fore premium price is charged.
Market places high value on items, because of its
unique feature, or no competition, or the product is
high on quality.
Penetration pricing is used to stimulate market growth,
therefore its prices are set low.
Price escalation.
Price escalation refers to added cost incurred
as a result of exporting, products, goods or
service from one country to another.
Several factors lead to high prices.
Price escalation.
1. Cost of Exporting.
Relates to situations in which
ultimate prices are raised by,
shipping costs, insurance,
packaging, longer channels of
distribution, larger middle man
margin, special taxes,
administrative costs and
exchange rate fluctuations.
Price escalation.
2. Taxes, Tariff and Administrative costs.
Price escalation.
4. Middle man and transportation costs.
Longer channel length, performance of
marketing functions and higher margins
may make it difficult to reduce prices.
Price Escalation
The Lower Prices are at Home
New York
Paris
Tokyo
1.23
$ 7.07
$ 6.53
7.50
10.50
7.89
17.29
4.55
39.99
74.92
75.40
79.73
54.54
Ray-Ban sunglasses
45.00
88.50
81.23
134.49
89.39
Sony Walkman
59.95
74.98
86.00
211.34
110.00
125.00
134.99
157.71
172.91
154.24
Nikon camera
629.95
840.00
691.00
768.49
1,054.42
Rome
Aspirin
Movie
18-7
0.99
Los Angeles
Mariah Carey CD
Windows 98
Diapers
Irwin/McGraw-Hill
London
$
Mexico City
$
1.78
16.22
16.09
17.82
15.31
20.67
117.99
123.94
179.79
211.20
264.46
13.52
5.03
5.42
6.86
10.55
SOURCE: Norihiki Shirouzu, Luxury Prices for U.S. Goods No Longer Pass Muster
in Japan, Wall Street Journal, February 8, 1996, p. B1; and Elizabeth Fleick, The
Cost of Europe: Buyer Beware, Europeans Are Getting Mad as Hell about Prices,
Time International, December 13, 1999, p. 38.
Price escalation.
How to Lower the Effects of Price Escalation
1. Lower cost of goods through
Manufacturing overseas where labor costs are lower (China)
Eliminate features or product quality
Proctor Gambles strategy for selling toilet paper in Brazil
Price escalation.
How to Lower the Effects of Price Escalation
4. Using Foreign Trade Zones
Imported goods stored or processed without imposing
tariffs or duties until items leave FTZ areas and is
imported into host country
FTZs can lower costs through:
Lower duties imposed
Lower labor costs in importing country
Lower ocean transportation costs with
unassembled goods (weight and volume are less)
Using local materials in final assembly
Pricing strategies.
Issues with different methods of pricing strategies:
1. Dumping
Defined as either products that are sold in international markets
below their production cost; or products priced lower in foreign
markets than sold in the companys domestic markets
WTO has set up penalties for dumping thru:
Countervailing duties
Minimum Access Volume (MAV)(restricts volume that can a
country can import)
2. Screwdriver Plants
Company sets up plants to assemble products in the importing
country where they sell the final products.
Pricing strategies.
3. Transfer Pricing Strategy
Intra-company transfer of pricing
4. Administered Pricing
Attempt by companies within same industry to set
prices in international markets
Cartels
OPEC
Shipping Industry
Diamond cartel controlled by DeBeers
5. Government Influenced Pricing
4.
3.
4.
in
Source: Presentation Zinocker, Simon, Kucher & Partner, dec.2006.
Producer
Production
Promotion
Distribution
Market research
Value
Profit
Environmental
factors
Product factors
Market factors
Pricing strategies
Other
elements
Terms
Firm performance
Source: Hollensen, Global marketing, 4e, 2008.
1.
2.
3.
4.
5.
6.
1.
2.
3.
4.
5.
Stages in PLC.
Place in product line.
Most important product features.
Product positioning.
Product cost structure.
1.
2.
3.
4.
Market Factors.
1.
2.
3.
4.
5.
Customers perceptions.
Customers ability to pay.
Nature of competition.
Competitors objectives,
strategies, strengths and
weaknesses.
Grey market appeal.
Price escalation
Skimming
Market pricing
Penetration pricing
Experience curve pricing
Bundle pricing
Transfer pricing
Price escalation.
Is a price-related phenomenon caused by the
summation of all cost factors in the
distribution channel including ex-works price,
shipping costs, tariffs, and distributor markup.
Skimming.
A price strategy involved charging a high price at
the top end of the market with the objective
of achieving the highest possible contribution
in a short time.
Market pricing.
When a price strategy involves charging a final
price based on competitive prices.
Penetration pricing.
When a price strategy involves charging a low
price with the objective of achieving the
highest possible sales.
Bundle pricing.
When price strategy is based on grouping
products and services in a system-solution
product in order to overcome possible
customer price concerns.
Transfer pricing.
When prices are charged for intra company
movement of goods and services. It may be
based on market price if the same service is to
be procured.
Export financing
Commercial banks
Export credit insurance
Factoring
Forfeiting
Bonding
Leasing
Counter-trade
Barter
Compensation deal
Buy-back agreement
Strategic alternatives in
international pricing
1. Standardization
2. Differentiation
1.
2.
Skimming
Penetration
Compete on quality
Co-opt contributors
PRICE RESPONSES
Use complex price actions
Source: Rao, Bergen, Davis (2000). How to fight a price war, Harvard business review, pp. 107-116.
Negotiating internationally
Cultural background of the negotiating parties is
different.
Thus, successful negotiations require:
Knowledge of the other partys culture
Respect
Flexibility
Some examples of cultural shocks when negotiating
from the Arab World, China etc.
Negotiating internationally
Gap analysis in a cross cultural negotiation
Cross-cultural negotiations
Negotiating tactics
Extreme demands
Tactic of slices
Best offer tactic
Good guys, bad guys tactics
1. Western - individualistic
Problem-oriented
Linear thinking and problem solving
Ignore history, tradition and interpersonal relationships
Impatient.
Individualistic:
Protestant culture
Status achieved not inherited
Authority as a function of position and can be challenged
Ethnocentrism
Stereotypes
Discussing religion, racial problems, local
politics
Violating racial or religious rules
Negotiation without an interpreter
Not knowing at all local language
Be on time!
Prepare for negotiations!
Study the opponents negotiation style!
Try to negotiate at your place or a neutral place!
Never let the other side know when your deadline is or
that you are in a hurry!
Think strategic!
Mix and mingle!
Be considerate and sensitive to
other sides culture and rituals!
Be patient!