Global Marketing Management

Warren J. Keegan

Chapter 12 Global Pricing

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Overview

Basic Pricing ConceptsEnvironmental Influences on Pricing DecisionsGlobal Pricing Objectives & StrategiesGray Market GoodsDumpingTransfer PricingThree Policy AlternativesSummary

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Learning Objectives

Know about the complexity of international price settingAppreciate which external & internal factors influence

international pricingLearn about different approaches to setting pricesBe aware of factors promoting or inhibiting

international price standardisationKnow how to react to dumping by competitorsLearn which key issues are involved in transfer pricing

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8 Pricing Considerations

Does the price reflect the product’s quality?

Is it competitive?Penetration,

skimming, or otherDiscounts &

allowances

Differ by market segment

Options in case of cost increase or decrease

Viewed as exploitativeDumpling laws

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Environmental Influences on Pricing Decisions (1)

Currency Fluctuations Two positions:

Fix prices in country target marketsFix prices in home-country currency

Pricing should be consistent with the company`s marketing strategy

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Environmental Influences on Pricing Decisions (2)

Exchange Rate Clause Allows the buyer & selller to agree to supply &

purchase at fixed prices in each company’s national currency

Designed to protect bother from unforeseen large swings in currencies

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Environmental Influences on Price Decisions (3)

Inflationary Environment Require periodic adjustments due to rising costs Must maintain operating profits LIFO – last in – first out is more appropriate

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Environmental Influences on Pricing Decisions (4)

Government Controls & Subsidies In countries with severe financial difficulties, governments

may restrict price increases or prescribe fixed prices

Competitive Behaviour Pricing decisions are also dependent on the nature of demand

and competitive action

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Market Skimming

Deliberate attempt to reach a segment that is willing to pay a premium price

Often used in introductory phase of product life cycle

Goal is to maximize revenue on limited volume & reinforce customer’s perception of high product value

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Penetration Pricing

Uses price as a competitive weapon to gain market position

Practiced by many companies in Pacific RimMeans that the product may be sold at a loss for

a certain time to gain market shareCompanies new to exporting cannot absorb such

losses

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Market Holding

Dictates that source-country currency appreciation will not be automatically passed on in the form of higher prices

May accept lower marginsMay have to shift production to other

countries or licensing

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Cost-Plus Price Escalation

Adding up all the costs required to get the product to where it is sold

All costs incurred in getting a product to an international market are taken into account

Sometimes ignores competitive conditionsMostly used by companies new to foreign business

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Gray Goods

Trademarked products that are exported form one country to another where they are sold by unauthorized persons or organizations

Bring a product produced in one country into another in competition with authorized importers – parallel importing

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Dumping

A company exports a product at a price lower than the price it normally charges in its own home market

Dumping is an important global pricing issue, because it is sometimes regarded as unfair competition

Organisations like the WTO or OECD have issued guidelines how to treat these problematic situations

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Transfer Pricing

Pricing transactions between buyers and sellers that belong to the same corporation

The approach used will vary with the nature of the firm: Cost-Based Transfer Pricing Market-Based Transfer Pricing Negotiated Transfer Pricing

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Tax Regulations & Transfer Prices

Companies sometimes use transfer prices to shift profits from high-tax to low-tax countries

The principle of arm`s length is a way of establishing a transfer price between company units. The price shall amount to what two independent, unrelated entities would negotiate

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3 Policy Alternatives

Extension/ethnocentric Price is the same around the world Importer absorbs freight & import

duties

Adaptation/polycentricPermits subsidiary to establish price

Invention/geocentricStrikes and intermediate position

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Summary

Different approaches to price setting Market Skimming Penetration Market Holding Cost Plus Price Escalation

Gray Market: Unauthorized distributorsDumping: selling products in international markets at

prices below those in the home countryTransfer Pricing: intracorporate exchanges