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Global Pricing Decisions

Module 6

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Price EscalationPrice Escalation

The Lower Prices are at HomeThe Lower Prices are at Home

Aspirin $ 0.99 $ 1.23 $ 7.07 $ 6.53 $ 1.78

Moie 7.50 10.50 7.89 17.29 !.55

"ei 501 #eans 39.99 7!.92 75.!0 79.73 5!.5!

a%&'an sunglasses !5.00 88.50 81.23 13!.!9 89.39

(on% )al*+an 59.95 7!.98 86.00 211.3! 110.00,i*e Air -ordan 125.00 13!.99 157.71 172.91 15!.2!

,i*on ca+era 629.95 8!0.00 691.00 768.!9 105!.!2

,e/ or* "ondon Paris o*%o Meico i4%

SOURCE: Norihiki Shirouzu, “Luxury Prices for U.S. Goods No Longer Pss !us"er in #$n,% &''

S"ree" #ourn', (e)rury *, +-, $. +/ nd E'iz)e"h ('eick, “0he Cos" of Euro$e: uyer e1re,

Euro$ens 2re Ge""ing !d s 3e'' )ou" Prices,% 0i4e 5n"ern"ion', 6ece4)er +7, +, $. 7*.

"os Angeles Madrid (4oc*ol+ 'erlin o+e

Maria are% D 16.22 16.09 17.82 15.31 20.67

)indo/s 98 117.99 123.9! 179.79 211.20 26!.!6

Diapers 13.52 5.03 5.!2 6.86 10.55

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Price Promotions in ChineseCultures with End-8 Prices

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Introduction

Global pricing is one of the most critical andcomplex issues in international mareting!

Price is the onl" mareting mix instrument

that creates re#enues! $ll other elementsentail costs!

$ compan"%s global pricing polic" ma" maeor brea its o#erseas expansion e&orts!

'ultinationals also face the challenges ofhow to coordinate their pricing acrossdi&erent countries!

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Introduction

Pricing for overseasmarkets is more complexbecause managementmust be concerned with

Foreign National Pricing

omestic pricing inanother countr!

International Pricing"etting prices of goodsfor export for bothunrelated and related

#rms

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Pricing Impact

Pricing is especiall" importantin international mareting

strateg" decisions( due to itse&ect on product positioning(maret segmentation(demand management( andmaret share d"namics!

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Pricing $onsiderations

)ature of the product

Production plant locations

*istribution s"stem used

Economic climate Currenc" +uctuations and

exchange rates

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© 2005 Prentice Hall

n4erna4ionaln4erna4ional

PricingPricing

(4ra4egies(4ra4egies

Anal%4icDi+ensions

Decision&Ma*ing

Decision&Ma*ing

o+pan% n4ernalac4ors

Proi4abili4%ranspor4s os4sarisaesProduc4ion os4sannel os4s

n4erna4ional Pricing (4ra4egies

Mar*e4 ac4ors

nco+e "eelso+pe4i4ionus4o+ers ul4ure

:niron+en4alac4ors

oreign :cangea4esnla4ion a4esPrice on4rolsegula4ions

Mar*e4&b%&Mar*e4Pricing

;nior+ Pricing

Managerialssues

ranser Pricingoreign urrenciesParallel +por4s<Gre%Mar*e4s:por4 Price :scala4ionGlobal Pricing (4ra4egies

inancing n4erna4ionalransac4ion

is*sus4o+er&Arrangeds.(upplier&Arranged

(ource o inancing

o++ercial 'an*sGoern+en4s,on&casransac4ions=

oun4er&4radingSource: Jeannet & Hennessey, 2001

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Global Pricing ,becti#es and.trategies 'anagers must determine the obecti#es

for the pricing obecti#es  /nit .ales

  'aret .hare  Return on in#estment

 0he" must then de#elop strategies toachie#e those obecti#es  Penetration Pricing

  'aret .imming

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*ri#ers of oreign 'aret Pricing

Customer Demand Competition

  Cross-order Price *i&erentials

Distribution Channels  3ariations in 0rade 'argins and 4ength of

'argins  5ssues of E#er"da" 4ow Prices 6E*4P7

  Parallel 5mports 6Gra" 'aret7 Government Policies

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 Approaches to International Pricing

1. Full-Cost Pricing: no uni" of si4i'r $roduc" is differen" fro4 ny o"her uni" in"er4s of cos", 1hich 4us" )er i"s fu'' shre of "he "o"' fixed nd 8ri)'e cos".

• here are seeral approaces 4o pricing in in4erna4ional +ar*e4s !hich

inclu"e:

• here are seeral approaces 4o pricing in in4erna4ional +ar*e4s !hichinclu"e:

2# >ariable&os4 Pricing= $ir%s regar" $oreign sales as onus sales

an" assu%e that any return o'er their 'ariale cost %a(es acontriution to net pro$it

• Prices are o4en se4 on a cos4&plus basis i.e. 4o4al cos4s plus a proi4+argin

• Prices are o4en se4 on a cos4&plus basis i.e. 4o4al cos4s plus a proi4+argin

• his is a practical approach to pricing !hen a co%pany has high $i)e" costsan" unuse" pro"uction capacity

• his is a practical approach to pricing !hen a co%pany has high $i)e" costsan" unuse" pro"uction capacity

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 Approaches to International Pricing

7. Skimming Pricing: 0his is used "o rech seg4en" of "he 4rke" "h" is

re'"i8e'y $rice insensi"i8e nd "hus 1i''ing "o $y $re4iu4 $rice for

 $roduc"

*# Pene4ra4ion Pricing= his is use" to sti%ulate %ar(et

gro!th an" capture %ar(et share y "elierately o$$eringpro"ucts at lo! prices

• It is use" to ac+uire an" hol" share o$ %ar(et• It is use" to ac+uire an" hol" share o$ %ar(et

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'aret .imming and inancial,becti#es

'aret .imming 

Charging apremium price

  'a" occur at theintroduction stageof product life c"cle

Sony A"# $or ca%cor"ers

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Penetration Pricing and )on-inancial ,becti#es

Penetration Pricing  Charging a low

price in order to

penetrate maretuicl"

  $ppropriate tosaturate maret

prior to imitation b"competitors

1- Sony .al(%an

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%pproaches to International Pricing"kimming versus Penetration Pricing

(oppers A/ai4 ?pening o irs4 )al&Mar4 ?u4le4 in ina

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Price Coordination

The following considerations will benecessar! when developing a globalpricing strateg!&

1! )ature of customers2! $mount of product di&erentiation

9! )ature of channels

! )ature of competition

;! 'aret integration<! 5nternal organi=ation

>! Go#ernment regulation

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11&18

*umping

5n international trade( this occurs whenone countr" exports a signi?cant amountof goods to another countr" at prices

much lower than in the domestic maret umping occurs when imports

are sold at an 'unfair( price)

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Countertrade $ountertrade means exchanging goods or

ser#ices which are paid for( in whole or part( with

other goods or ser#ices( rather than with mone" Forms of $ountertrade

  "imple barter

 

$learing agreement& clearing account barterwith no currenc" transaction reuired

  "witch trading& Practice in which one compan"sells to another its obligation to mae a purchase in

a gi#en countr"  *u!back +compensation,& occurs when a ?rm

builds a plant in a countr" - or supplies technolog"(euipment( training( or other ser#ices to the countr"

and agrees to tae a certain percentage of thelant@s out ut as artial a ment for the contract!

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Countertrade Forms of $ountertrade

 

$ounter Purchase& .ale of goods andser#ices to one compan" in other countr" b" a

compan" that promises to mae a future

purchase of a speci?c product from the same

compan" in that countr"

  -.set& $greement that a compan" will o&set ahard - currenc" purchase of an unspeci?edproduct from that nation in the future! $greementb" one nation to bu" a product from another(

subect to the purchase of some or all of thecomponents and raw materials from the bu"er ofthe ?nished product( or the assembl" of suchproduct in the bu"er nation!

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Exhibit : Classi?cation of orms ofCountertrade

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Countertrade

/otives behind $ountertrade&  Gain access to new or diAcult marets

  ,#ercome exchange rate controls or lac of

hard currenc"  ,#ercome low countr" credit worthiness

  5ncrease sales #olume

  Generate long-term customer goodwill

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 0han Bou