International Pricing Strategy w11

7/28/2019 International Pricing Strategy w11

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Chamila Perera

After this lecture you should be able to:

Describe the drivers of foreign market pricing

Explain the management of price escalation

Explain the management of pricing in inflationaryenvironments

Discuss strategies for managing the effects of currencyfluctuations

Describe the use of transfer pricing

Explain the implications of antidumping regulations

Understand how to implement pricing coordination Describe countertrade

ProductPromotionplace

pricing
http://www.google.com.au/imgres?q=foreign+currency+pictures&hl=en&rlz=1R2SKPB_enAU367&biw=1280&bih=556&tbm=isch&tbnid=m8AQpTYbNwmLdM:&imgrefurl=http://www.123rf.com/photo_6611255_foreign-currency-exchange-stock-market-as-concept.html&docid=ayQ0zTW10Xe6KM&w=400&h=400&ei=Xy2RTpXXB-znmAX3k937DQ&zoom=1&iact=rc&dur=0&page=9&tbnh=159&tbnw=163&start=137&ndsp=22&ved=1t:429,r:8,s:137&tx=91&ty=112


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http://www.exchange-rates.org/history/AUD/USD/G/30

http://www.youtube.com/watch?v=M1AgBRnwYvk

Strong Australian dollar poses e conomic danger

http://www.youtube.com/watch?v=xNHsge_6hHM&feature=related

Japanese Companies Fight Rising Yen Value

Proctor and Gamble selling smallsachets of shampoo in developingmarkets due to low buying power

Louis Vuitton targets morebroadly in developed countrieslike Japan than it does indeveloping countries (projectingpremium image)
http://www.youtube.com/watch?v=M1AgBRnwYvkhttp://www.youtube.com/watch?v=xNHsge_6hHM&feature=relatedhttp://www.aygee.net.au/content/images/800px-Procter_and_Gamble_Logo_svg.pnghttp://www.google.com.au/imgres?imgurl=http://im.in.com/connect/images/profile/sep2009/Louis_Vuitton_300.jpg&imgrefurl=http://connect.in.com/louis-vuitton/profile-538580.html&usg=__JJzzHBpwez5QwRM65C0DyYIk6HA=&h=360&w=300&sz=6&hl=en&start=4&zoom=1&itbs=1&tbnid=cUpMh7kRGLydYM:&tbnh=121&tbnw=101&prev=/search?q=louis+vuitton&hl=en&biw=1260&bih=866&tbm=isch&ei=smbDTbWfCoi-vgOJ19WnAQhttp://www.youtube.com/watch?v=xNHsge_6hHM&feature=relatedhttp://www.youtube.com/watch?v=M1AgBRnwYvk


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Our range is worn by A listcelebrities to the likes of KimKardashian, Selena Gomez andKaty Perry to name only a few.Now, as one might appreciate,

the style counsel for these types

of celebrities are not ones to pickrun of the mill type clothing,

and they do so on the basis toensure that the styles are cuttingedge, and only worn by a select

few. Similarly these items arepriced such that they remaininaccessible to the undesirable.

channels(distribution)

customers(price

sensitivityand

segments)competition(nature andintensity)

company(costs andgoals

Governmentpolices

The organisation needs to decide what it want to accomplish through itsinternational pricing strategy.

Its goals might include maximising current profits, penetrating the marketor projecting a premium image.

Cost differentials between countries can lead to wide difference in price.

Organisation costs figure prominently in the pricing decision.

Costs set the floor: the organisations want to set at least a price that will cover all costs needed to make and sell its products.


OR


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Cost-plus pricing

adding international costsand a markup to thedomestic manufacturingcost

Dynamic incrementalpricingbased on the internationalcosts and that ignoresdomestic fixed costs

Could triggeraccusations ofdumping


Pacific Dunlap sent(2009) its manufacturing(Bonds, King Gee, andHard Yakka) to Asia

Hindustan Leverspends a lot its R&Don developing newtechnologies to reducemanufacturing costs

customers(price

sensitivityand

segments)

Customer demand is

also a function ofbuying power, tastes,habits, cultural normsand substitutes

Low price vs luxury image


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Check this clip Here's an Idea-Amazon.com theLowest Price Aroundhttp://www.youtube.com/watch?v=rSlz-NYC6-0

Briefly answer the following.

Online business models often bring internationalretail marketers competitive advantages throughminimising costs. This enables them to offer moreattractive prices than competitors in the market. Canall online marketers gain this advantage? What areother key factors that determine attractive onlinepricing?

Taxation regulation

sales tax on cars in the EU

15% in Luxembourg - 213% in DenmarkEven after the launch of the euro, car prices in the EUcan still vary by up to 50 per cent.

recent reduction on tax on importedwines in Hong Kong allows for a

reduction in end selling price

Governmentpolices

channels(distribution)

customers(price

sensitivityand

segments)

competition(nature andintensity)


GovernmentpolicesShipping,

insurance

Tax andtariffs

margins ofintermediaries

The process of covering incremental costs (e.g. Shipping,insurance, tariffs, margins of intermediaries) that make thefinal foreign retail price higher than the domestic price
http://www.youtube.com/watch?v=rSlz-NYC6-0http://www.youtube.com/watch?v=rSlz-NYC6-0http://www.youtube.com/watch?v=rSlz-NYC6-0http://www.youtube.com/watch?v=rSlz-NYC6-0http://www.youtube.com/watch?v=rSlz-NYC6-0http://www.youtube.com/watch?v=rSlz-NYC6-0


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TWO BROAD APPROACHES TO DEALINGWITH PRICE ESCALATION

Find ways to cut the export price

Position the product as a premium brand

rearrange the distribution channeli.e., Bypass Japanese Kairetsu through direct marketing

rearrange costly features (or make them optional)i.e., offer the no-frills version of a Sony Vaio in Cambodia give thecustomer the option to upgrade

downsize the product make a smaller version of theproduct

assemble or manufacture in foreign marketsi.e., BMW assemble cars in South Africa

adapt the product to escape tariffs or tax leviesi.e., RANG ROVER car or a truck?

Ways to safeguard against inflation modify components/ingredients

not all components maybe subject to the same level of

inflation source material from low cost suppliers

import from low inflation countries

shorten credit terms juggle terms of payment

include escalator clauses in long-term contracts to provide necessary protection

quote prices in a stable currency Dollar or Euro

pursue rapid inventory turnovers use of IT and JIT delivery to yield competitive advantage

draw lessons from other countries


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Action Purpose

adapt the productline

to reduce exposure to a government imposed pricefreeze

shift targetsegments or markets

to shift the organisations target segment

launch newproducts or variantsof existing products

navigate around by systematically launching ne wproducts or modifying existing ones.

negotiate with thegovernment

to negotiate for permission to adjust their prices.Lobbying can be done individually, but it is more likelyto be successful if done industry wide.

predict pricecontrols

Given historical information on the occurrence of pricecontrols and other economic variables, econometricmodels can be constructed to forecast the likelihood ofprice controls.

Exporters and importers are subject to thewhims of currency movements.

a strategic view of the problem should beundertaken

Two major managerial pricing issues resultfrom currency movements

the Pass-through issue. How

much currency movements arereflected in changes to the price

customers pay.

the Pricing-to-market (PTM).

Destination-specific adjustmentsof mark ups in response toexchange rate movements.

A weakening dollarallows Australianbased organisations tolower the yen-price of

Australian goodsexported to Japan

This enables Australian exportersto steal market share away from thelocal Japanese competitors without

sacrificing profit

A strong dollar willundermine the

competitive position ofAustralian exporters

The retail price in yen goes upas a result Australian

exporters might lose marketshare


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Source: Terry Clark, Masaaki Kotabeand Dan Rajaratnam (1999) Exchange Rate Pass-Through and International PricingStrategy: A Conceptual Framework and Research Propositions Journal of International Business Studie... >Vol. 30, No. 2, 2nd Qtr ,Pge249 of 249-268.

The extent of exchange rate pass-through in

international pricing is affected

By:

the firm's pricing orientation

performance orientation

Distribution policy

brand equity

exchange rate uncertainty Competitive structure

http://www.youtube.com/watch?v=fS8n1kdl5_8
http://www.jstor.org.ezp.lib.unimelb.edu.au/stable/i301361http://www.jstor.org.ezp.lib.unimelb.edu.au/action/showPublication?journalCode=jintebusistudhttp://www.jstor.org.ezp.lib.unimelb.edu.au/action/showPublication?journalCode=jintebusistudhttp://www.jstor.org.ezp.lib.unimelb.edu.au/stable/i301361http://www.youtube.com/watch?v=fS8n1kdl5_8http://www.youtube.com/watch?v=fS8n1kdl5_8http://www.youtube.com/watch?v=fS8n1kdl5_8http://www.youtube.com/watch?v=fS8n1kdl5_8http://www.jstor.org.ezp.lib.unimelb.edu.au/stable/i301361http://www.jstor.org.ezp.lib.unimelb.edu.au/stable/i301361http://www.jstor.org.ezp.lib.unimelb.edu.au/action/showPublication?journalCode=jintebusistudhttp://www.jstor.org.ezp.lib.unimelb.edu.au/action/showPublication?journalCode=jintebusistudhttp://www.jstor.org.ezp.lib.unimelb.edu.au/action/showPublication?journalCode=jintebusistud


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A quick question for you

Should exporters pass through gains (or lose)

they make from currency movements to theircustomers?

Figure 14.1 Exporter strategies under varying currency conditions

Currency quotation

Which currency should be used in international businesstransactions?

which party should bear the risk?

Quoting a common currency could be a way of sharing therisk

US dollar across countries with their own currency

Sellers and buyers usually prefer a quote in their domesticcurrency.

That way, the other party will have to bear currency risks.


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Transfer pricingPrices charged for sales transactions amongrelated entities of the same organization indifferent countries

Factors of Transfer pricingtax regimeslocal market conditionsmarket imperfectionsjoint venture partnermorale of local country managers

International pricing and antidumping regulation

Dumpingintroducing a product to themarket of another country atmuch less than the productsnormal value in the homemarket

to protect local producersagainst the encroachment oflow-priced imports,government may levycountervailing duties or fines.

WTO helps regulating some of this behaviourGovernments of countries can seek redress withWTO if they feel another country has dumped

product in their marketmember countries must comply with WTOrulings

Price coordination

Price coordination is critical for global (or regional

brands) that are marketed with no or very fewcrossborder variations

IF MARGINAL COST ARE ROUGHLY EQUIVALENT ,ORGANISATIONS WOULD CHARGE RELATIVELY LOWPRICES IN HIGHLY PRICE SENSITIVE COUNTRIES ANDHIGH PRICE IN PRICE INSENSITIVE MARKETS


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Price coordination : Similar priceacross markets depends on:

nature of customersApple prices globally to cater for a global segment and avoidparallel imports

amount of product differentiation

identical products probably need to be priced identicallynature of channels

how much control over international distributors?

nature of competition

competing with the same rival in a given regionmarket integration

when markets integrate barriers to cross border movement ofgoods come down

internal organisationgovernment regulation

Activity 2Quickly read Microsoft rethinks unified pricingstrategy

See whether you can find international pricingrelated theoretical concepts that we discussed so farin the lecture. Underline them.

Will the proposed strategy work? What do youthink?

Increasingly, purchasers demand global-pricing contracts (GPCs)from their suppliers.

Before engaging in a GPC with a purchaser, it is important forcompanies to do their homework:

Select customer who want more than just the lowest price

Align the suppliers organisation with the customers

Hire global account manger who can handle diversity.

Reward those global-account managers and local salesrepresentatives who make the relationship work

Allow for some pricing flexibility

Building information systems to monitor the key variables (e.g.cost variations, competitive situation)

http://www.youtube.com/watch?v=RQ8QsqdJq0chttp://www.youtube.com/watch?v=Qf4jtatsGoY&NR=1
http://www.youtube.com/watch?v=RQ8QsqdJq0chttp://www.youtube.com/watch?v=Qf4jtatsGoY&NR=1http://www.youtube.com/watch?v=Qf4jtatsGoY&NR=1http://www.youtube.com/watch?v=Qf4jtatsGoY&NR=1http://www.youtube.com/watch?v=RQ8QsqdJq0chttp://www.youtube.com/watch?v=RQ8QsqdJq0c


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Countertrade is an umbrella term used to describeunconventional trade-financing transactions that involvesome form of non-cash compensation

The trading of products without direct monetary payments

Pepsis US$ 3 billion arrangement with theformer Soviet Union to swap Pepsi f or profitsin Stolichnaya vodka and ocean freightersand tankers

15% of world trade!(some say its about30 %-50 %)

Barter - Direct exchange of goods

Compensation deal - cash and products

Buyback - buy completed products from the supply ofcomponents

Offset - cash but spent in the customer country

Other parties - Trading houses
http://www.psfk.com/wp-content/uploads/2008/10/pepsi-2.png


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(1) ________________ is the only marketing mixinstrument that creates revenues.

a. Product

b. Price

c. Place

d. Promotion

(2) All of the following are drivers that governglobal pricing decisions EXCEPT:

A. Company

B. Customers

C. Controls

D. Competition

(3) In the international marketplace,_________________ pricing adds internationalcosts and a mark-up to the domesticmanufacturing cost.

A. Dynamic incremental pricing

B. Export price

C. Import price

D. Cost-plus price


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(4) One of the risks of dynamic incrementalpricing (in the case where the export list price

is far below the domestic price) that_____________ can be triggered in the exportmarket.

a. High profit potential

b. Dumping charges or accusations

c. Falling profits

d. Falling quality

(5) ________________ is a function of buyingpower, tastes, habits, cultural norms andsubstitutes.

a. Customer needs

b. Customer demand

c. Competition

d. Company costs

(6) Countries with low per-capita income aremore __________ than in developed countries.

a. Promotion sensitive

b. Price sensitive

c. Need sensitive

d. Demand sensitive


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(7) Once brand loyalty has been established,price will play less of a role as a purchase

criterion, and the firm may be able to institute a________________ strategy.

a. Demand-based

b. Premium pricing

c. Elastic pricing

d. Promotion-related pricing

(8) There are two ways to deal with the priceescalation phenomenon. One of these methodsis to cut the export price. The other is to:

a. Change the promotion strategy

b. Position the product as a (super) premium brand

c. Position the product as a lower quality brand

d. Reduce retailer margins.

(9) Which of the following would be a good

option to follow if lowering the export pricewere the firms objective?

a. Rearrange the distribution channel

b. Change the promotion

c. Change the warranty provisions

d. Give more of the product in the package asan incentive to purchase


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(10) How can Australian exporters minimisethe effects of price escalation in foreign

markets?

Documents

International Pricing Strategy w11