Global Marketing 11

7/29/2019 Global Marketing 11

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Pricing Decisions

o a ar e ng

(Global Edition)Chapter 11

1

Chapter topics:

Pricing concepts r c ng o ec vesPrice setting

Environmental issuesPricing policy alternativesGray market goods

DumpingTransfer pricingCountertrade

2011 Pearson Education, Inc.

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Law of One PriceAll customers in the

National markets

market get the bestproduct for the best

Competition

Global markets

Fra mented beer amon s

Crude oilmarket: Budweiser, theleading global brand,

Integrated circuits

market share

Heinekens price in Japan is a function of


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compe on w o er mpor s an enational producers.

Low introductory interest rateson credit cards with high

Profit MaximizationTarget Return

Profitability Objectives

Compaqs low-priced PCsincrease market share and sales

Sales MaximizationMarket Share

Volume Objectives

Price wars among major airlinesValue PricingCompetition

o services

High-priced luxury autos suchas Ferrari and watches by Rolex

LifestyleImage

Prestige Objectives

High prices for tobacco andalcohol to reduce consumption

Profit MaximizationNot-for-Profit


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Market IncentivesMarket Suppression


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Global Pricing Objectivesand Strategies

The global manager must develop systems and

olicies that address

Price Floor: minimum price

Optimum Price: function of demand

Must be consistent with global opportunities and

constraints Be aware of price transparency created by Euro

zone and Internet


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Global Pricing Objectivesand Strategies

Managers must determine the objectives fort e pr c ng

Unit Sales

Market Share

Return on Investment

hey must then develop strategies to achieve

those objectives Penetration Pricing

Market Skimming


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Select pricing objective(s)

Determine demand

Estimate costs

Analyze competitors pricing

Assess regulatory factors


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Se ect price &price-adaptation strategies

Target-return pricing

Perceived-valuepricing

Value pricing

Goin -rate ricin

Auction-type pricing


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Market Skimming andFinancial Objectives

Market Skimmin Charging a premium price

Ma occur at theintroduction stage ofproduct life cycle

Luxury goods marketers

use price to differentiatepro uc s

LVMH, Mercedes-Benz


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Penetration Pricing andNon-Financial Objectives

Charging a low price in order

to penetrate market quickly ppropr ate to saturate mar et

prior to imitation bycompetitors

Packaged food product makers,

with products that do notstrategy to get marketsaturation before competitors


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1979 Sony Walkman

Companion Products orRazors and Blades Pricing

Products whose sale isde endent u on the sale of

primary product Video games are dependent

console

If you make money on thea es, you can g ve away

the razors

subsidize the phone andmake money on calling plans


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- ox ame ys em an por sGame

Determine the segment(s) to be targeted, as well asthe prices that customers in the segment will be

w ng to pay.

the companys future profitability.

Allocate the target costs to the products variousfunctions. Calculate the gap between the target cost

.

Obe the cardinal rule: If the desi n team cant meet


the targets, the product should not be launched.


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Pricing Goods forCross Border Shipment

1. Does the price reflect the products quality?

2. Is the price competitive, given local market conditions?. , ,or some other pricing objective?

4. What type of discount (trade, cash, quantity) and allowance(advertising, trade-off) should the firm offer its internationalcustomers?

.6. What pricing options are available if the firms costs increase

or decrease? Is demand in the international market elastic orinelastic?

7. Are the firms prices likely to be viewed by the host-countryovernment as reasonable or ex loitative?


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8. Do the foreign countrys dumping laws pose a problem?

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Cost-based pricing is based on ananalysis of internal and external cost

principles use the full absorption cost

Per-unit product costs are the sum of allpast or current direct and indirectmanufacturing and overhead costs


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Rigid cost-plus pricingmeans that

to the eight pricing considerations

Flexible cost-pluspricingensures t atprices are competitive

in the context o theparticular market


11-15environment


$1=101 $1=130 $1=113 $1=91


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Defined as a persistent upward

chan e in rice levels

Can be caused by an increase

Can be caused by currency

Essential requirement for pricingis the maintenance of operating


11-17margins

Government Controls,Subsidies, and Regulations

The types of policies Foreign governments

affect pricing decisions require funds to be-

Dumping legislation

accounts for a long time

restrict rofits taken out maintenance legislation

of the country and limit

funds paid for imported

General reviews of pricelevels

materia

Restrict price competition


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If competitors do not adjust their prices

in response to rising costs, it is difficultto ad ust our ricin to maintainoperating margins

sourcing in a lower-cost country, it may

be necessary to cut prices to staycom etitive


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Using Sourcing as aStrategic Pricing Tool

Marketers of domestically manufactured

n s e pro uc s may move o o s oresourcing of certain components to keep costsown an pr ces compe ve

China is the worlds workshop

Rationalize the distribution system: Toys R Usb asses la ers of intermediaries in Ja an to

operate US-style warehouse stores


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Global Pricing: PolicyAlternatives

Extension or Ethnocentric

ap a on or o ycen r c

Geocentric

Mercedes moved beyond

began offering Lexus Mercedes

value at $20K less. In 1993,Merce es ooste emp oyee

productivity, increased low-costsuppliers and invested in


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production facilities in the US tomove to better pricing.

Extension or EthnocentricPricing

Ethnocentric Per-unit price of an item is the same,

is located

mporter must a sor re g t an

import duties Fails to respond to each national market


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Adaptation or PolycentricPricing

Permits affiliatemana ers or inde endent

distributors to establishrice as the feel is most

desirable in theircircumstances

Sensitive to marketAIDS drugs meant for Africa,

potential for gray are smuggled into Europe


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Intermediate course of

ac on Recognizes that several

factors are relevant toricin decision

Local costs

Competition


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Trademarked products are exported from one

country to another where they are sold byunauthorized persons or organizations

Occurs w en pro uct is inshort supply, when producersuse s mm ng strateg es n

some markets, and whengoo s are su ect tosubstantial mark-ups


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Dilution of exclusivity Free riding

relationships

pricing schemes epu a on an egaliability

of date leads to

lawsuits


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Sale of an imported product at a price lower

market or country of origin

are priced at either levels that represent less

margin or at levels below those prevailing inthe roducin countries

To prove, both price discrimination and injurymust be shown


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In 2003, the Southern Shrimp

countries were dumpingshrim in the US

The International TradeCommission a reed andallowed the US Dept. ofCommerce to raise duty rates

on shrimp from India, China,Brazil, Vietnam, Ecuador, and


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a an


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Representatives of two or more companies

secretl set similar rices for their roducts Illegal act because it is anti-competitive

Horizontal rice fixin occurs whencompetitors within an industry that make andmarket the same product conspire to keepprices high

Vertical price fixing occurs when amanufacture conspires withwholesalers/retailers to ensure certain retail


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pr ces are ma n a ne

Pricing of goods, services, and intangibleproperty oug t an so y operat ng un tsor divisions of a company doing business withan a ate n anot er ur s ct on

Intra-corporate exchanges

Cost-based transfer pricing

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Negotiated transfer pricing


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Countertrade occurs when payment is madein some form other than money

Options

Counterpurchase orarallel tradin

Offset

Com ensation tradin or

buyback

Switch tradin


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e eas comp ex an o es ormof bilateral, non-monetarycountertrade

services between two parties


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Global Marketing 11