Global Marketing Management

Chapter 12 Global Pricing

Warren J. Keegan
 Overview
❚ Basic Pricing Concepts
❚ Environmental Influences on Pricing Decisions
❚ Global Pricing Objectives & Strategies
❚ Gray Market Goods
❚ Dumping
❚ Transfer Pricing
❚ Three Policy Alternatives
❚ Summary

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 Learning Objectives
❚ Know about the complexity of international price setting
❚ Appreciate which external & internal factors influence
international pricing
❚ Learn about different approaches to setting prices
❚ Be aware of factors promoting or inhibiting international
price standardisation
❚ Know how to react to dumping by competitors
❚ Learn which key issues are involved in transfer pricing

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8 Pricing Considerations

❚ Does the price reflect ❚ Differ by market

the product’s quality? segment
❚ Is it competitive? ❚ Options in case of cost
❚ Penetration, increase or decrease
skimming, or other ❚ Viewed as exploitative
❚ Discounts & ❚ Dumpling laws
allowances

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 Environmental Influences on Pricing
Decisions (1)
❚ Currency Fluctuations
❙ Two positions:
❘ Fix prices in country target markets
❘ Fix 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 Rim
❚ Means that the product may be sold at a loss for a
certain time to gain market share
❚ Companies 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 margins
❚ May 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 conditions
❚ Mostly 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/polycentric
Permits subsidiary to establish price
Invention/geocentric
Strikes 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 distributors
❚ Dumping: selling products in international markets at
prices below those in the home country
❚ Transfer Pricing: intracorporate exchanges

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