GLOBAL PRICING

SUBMITTED BY:

Manish Sabharwal (640)

Tarun Tahiliani (627)
 Introduction
Global pricing is one of the most critical and complex issues
that global firms face so it can give a break or a boost to
company’s revenue. It is important because:

Price is the only marketing mix that generates revenue all

other entail costs.
Local pricing v/s Global pricing – Image consistency issue
Lack of the coordination in the global market will give rise to
gray market or parallel trade situation
4 C’s are the main drivers of global pricing strategies of any
company operating internationally: COMPANY,
CUSTOMER, COMPETITION and CHANNELS
 Company
Company includes the goals and costs as the major factor of
global pricing strategies.

Major Goals Include

Growth Maximization/revenue maximization
 Market penetration
Projection of an image

Companies objectives and goals are different in different

market. For example. New Balance, the US based shoe
maker sells its shoes in France as haute couture rather than
athletic shoes and they price it at almost double of the price
in US.
 Costs
 Costs are different in different markets because of various
reasons like labor, raw material etc.
 Costs are very prominent in pricing decision of a firm because
pricing is done to cover the cost involved.
 Two costs are there
 Fixed costs
 Variable costs
 Export Pricing policies:
 Cost-Plus Pricing: adds international costs and a mark-up to the
domestic manufacturing cost.
 Dynamic Incremental Pricing: only variable costs and a portion
of the overhead load (incremental costs) should be recuperated.
Exporting-related incremental costs (manufacturing costs,
shipping expenses, insurance, and overseas promotional costs).
 Customer
If costs set the floor for pricing , consumer willingness to pay sets a ceiling to
the price. Consumer’s role in international pricing is derived by these
reasons:
Buying power
Taste
Habits & Spending patterns
Availability of substitutes

Option to tackle customers issue:

Downsizing
Niche player targeting upper end
Portfolio of products
Sell older version at low prices

Example: Proctor & Gamble downsized the packet size of Ariel in Egypt
thereby lowering the cash outlay for ordinary consumers.
 Competition
Competition plays an important role in pricing because we
have different kinds of competition in different market:

Number of competitors:
 Monopoly, Perfect competition
Nature of competition:
 Global or local players, state owned or private owned
Position of company in the competition:
 Price leaders or price takers
Knockoff items / counterfeit products:
 Imitation products offered for sale
Smuggled goods.
 Channels
Distribution channels determine the pricing in different
ways depending upon:
Length of channels:
producer to consumer in how many steps
Balance of power between manufacturer and retailers
Unauthorized distribution channels in the gray markets

For example:
US and Germany have direct marketers , supermarkets and
specialty retails for personal computers where as in Britain
prices are 50 % higher than in Germany with market
dominated by Dixons , a retail chain that charges high
margins.
 Govt. policies
Government policies can have a direct or indirect impact on the
pricing policies. Factors that have a direct impact are:
Sales tax rates
Tariffs
Price controls
Policy regarding Floor price/Ceiling price

Factors that have an indirect impact on pricing are:

Interest rates
Currency volatility
Inflation
 Concept of Price escalation
Exporting involves more steps and substantially higher risks
than domestic marketing.
To cover the incremental costs (shipping, insurance, tariffs,
etc), the final foreign retail price will often be much higher
than the domestic retail price. This is known as price
escalation.

Price escalation raises two pressing issues:

 Sticker shock: willingness of foreign customers to pay the
inflated price
 Competitiveness: inflated price making the product less
competitive
Managing price escalation
Rearrange the distribution channel: length of the channel, or
number of layers between manufacturer and end-user.
Example: US firms in Japan

Eliminate costly features (or make them optional): core

product + optional feature available at extra cost

Downsize the product

Assemble or manufacture the product in foreign markets

Adapt the product to escape  tariffs or tax levies: Range Rover

in US.
Pricing in Inflationary Environments
There are several alternative ways to safeguard against
inflation
 Modify components, ingredients, parts and/or – packaging
materials
 Source materials form low-cost suppliers
 Shorten credit terms
 Include escalator clauses in long-term contracts
 Quote Prices in a stable currency
 Pursue rapid inventory turnovers
 Draw lessons from other countries
 Global Pricing and Currency Movements
Given the sometimes dramatic exchange rate movements,
setting prices in a floating exchange rate world poses a
tremendous challenge.
Two major managerial pricing issues  result from currency
movements:
How much of an exchange rate gain (loss) should be passed
through our customers?
Ex: Customer’s price sensitivity, the amount of competition
in the export market
In what currency should we quote our prices?
Depends on the balance of power between the supplier and
the customer
Some companies adopt a single currency
 Transfer pricing
It refers to the setting, analysis, documentation, and
adjustment of charges made between related parties for
good, services, or use of property (including intangible
property).
Following criteria should be considered while making transfer
pricing decisions:
Tax regimes
 Local Market conditions
 Market Imperfections
 Joint-venture partner
 Morale of local country managers
 Anti dumping regulation
 Dumping: imports are being sold at an “unfair”price

 Protectionism

To minimize risk exposure to antidumping actions,

exporters might pursue any of these strategies:
 Trading-up (move away from low-value to high-value
products)
 Service Enhancement: differentiate your product by
adding support services to the core product
 Distribution and Communication: strategic alliances
Set up units in foreign country
 Price Coordination
When developing a global pricing strategy, one of the
thorniest issues is how much coordination should exist
between prices charged in different countries

In deciding how much coordination, several considerations

matter:
Nature of customers: With global customers price
coordination is must. For ex. In Europe, Microsoft sets
prices that differ by not more than 5% between countries

Amount of product differentiation: less differentiation , the

larger the need for price coordination.
Nature of Channels: distribution channels can be viewed as
intermediate customers.

Nature of competition: Global competition demands a

cohesive strategic approach for the entire marketing mix
strategy, including pricing.

Market integration

Internal organization

Government regulation
 Countertrade
Countertrade is an umbrella term used to describe unconventional trade-
financing transactions that involve some form of noncash compensation .

Types:
Barter: Exchange of goods or services
Switch trading: Practice in which one company sells to another its
obligation to make a purchase in a given country
Counter purchase: Sale of goods and services to a country by a company
that promises to make a future purchase of a specific product from the
country
Buyback: occurs when a firm builds a plant in a country - or supplies
technology, equipment, training, or other services to the country and
agrees to take a certain percentage of the plant's output as partial
payment for the contract
Offset: Agreement that a company will offset a hard - currency purchase
of an unspecified product from that nation in the future
Motives Behind Countertrade
 Gain access to new or difficult markets
 Overcome exchange rate controls or lack of hard currency
 Overcome low country credit worthiness
 Increase sales volume
 Generate long-term customer goodwill

Shortcomings of Countertrade
 No in-house use for goods offered by customers
 Timely and costly negotiations
 Uncertainty and lack of information on future prices
 Transaction costs
 CASE 1: McDonald’s Pricing Strategy in India

McDonald's India is a joint-venture company managed by Indians.

McDonald’s India, a subsidiary of McDonald’s USA, has expanded
its presence in India via 2 joint venture companies – Connaught
Plaza restaurants and Hard castle restaurants.
 McDonald's opened its doors in India in Vasant Vihar, New Delhi
in October 1996

Global Strategy:
Customer driven, goal oriented
Achieving sustainable, profitable growth
Designed to increase restaurant visits and grow
Brand loyalty among new & existing customers
Further build financial strength
 Strategy in India
Much higher degree of adaptability
40% Vegetarians –Vegetarian selections to suit Indian taste
Maharaja Mac replaced Big Mac, Chicken Patty instead of Beef
Respect for local culture- Special Indian menu, No beef or
pork items in India
McAloo burger, Veg Salad Sandwich, McMasala & Veg Sauces
Re-formulated own products using spices favoured by Indians
Only vegetable oil used as a cooking medium
Common Menu- Chicken Nuggets, Fillet-O- Fish, fries, sodas,
shakes
A very popular punch line of Mcdonalds-“Aap ke zamane
mein, baap ke zamane ka daam”.
The main reason of this price strategy was to attract the
middle class & the lower class of people in India. After this
not only the upper class prefers going there but all class of
people go there.

Value Pricing:
 Happy meal – small burger ,fries ,coke + toy
 Medium Meal Combo- burger ,fries, coke-veg Rs:75
,Maharaja Mac Meal Rs: 95
 Family Dines under Rs: 300
 Price lower than Pak ,Srilanka ,50% lower than U.S.
 Break even in 2008
 Accumulated losses in initial years but that did not stop
the value pricing strategy so as to reinforce the image of
value for money fast food. Continued brand building
exercise with full vigour
 In September 2009, McDonald’s announced reduction in
prices by almost 25% for its lunch and dinner menus.
Prices for its extra-value meals like McVeggie and
McChicken were reduced to Rs. 85 and 95 respectively
from Rs. 110 and 120 respectively. Typically a meal consists
of burger, French fries and soft drinks. This strategy was
surprising as it came at a time when food prices were
increasing by the day.