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(5588) MBA Executive
Pricing Issues in International Marketing
Roll # AB 523655 Semester: Spring 2010
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PRICING - Introduction
Setting the right price is an important part of effective marketing. It is the only part of the marketing mix that generates revenue (product, promotion and place are all about marketing costs). Price is also the marketing variable that can be changed most quickly, perhaps in response to a competitor price change. Put simply, price is the amount of money or goods for which a thing is bought or sold. The price of a product may be seen as a financial expression of the value of that product. For a consumer, price is the monetary expression of the value to be enjoyed/benefits of purchasing a product, as compared with other available items. The concept of value can therefore be expressed as: (Perceived) VALUE = (Perceived) BENEFITS – (Perceived) COSTS A customer’s motivation to purchase a product comes firstly from a need and a want: e.g. Need: "I need to eat Want: I would like to go out for a meal tonight") The second motivation comes from a perception of the value of a product in satisfying that need/want (e.g. "I really fancy a McDonalds"). The perception of the value of a product varies from customer to customer, because perceptions of benefits and costs vary. Perceived benefits are often largely dependent on personal taste (e.g. spicy versus sweet, or green versus blue). In order to obtain the maximum possible value from the available market, businesses try to ‘segment’ the market – that is
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to divide up the market into groups of consumers whose preferences are broadly similar – and to adapt their products to attract these customers. In general, a products perceived value may be increased in one of two ways – either by: 1) Increasing the benefits that the product will deliver, or, 2) Reducing the cost. For consumers, the PRICE of a product is the most obvious indicator of cost hence the need to get product pricing right. Factors affecting demand Consider the factors affecting the demand for a product that are 1) within the control of a business and 2) outside the control of a business: Factors within a businesses’ control include: Price (assuming an imperfect market – i.e. not perfect competition) Product research and development Advertising & sales promotion Training and organisation of the sales force Effectiveness of distribution (e.g. access to retail outlets; trained distributor agents) Quality of after-sales service (e.g. which affects demand from repeatbusiness) Factors outside the control of business include: The price of substitute goods and services The price of complementary goods and services Consumers’ disposable income Consumer tastes and fashions Price is, therefore, a critically important element of the choices available to businesses in trying to attract demand for their products.
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PRICING ISSUES IN INTERNATIONAL MARKETING
Introduction Among the four marketing mix, product, distributing channels, promotion and price, only price creates income and the other three generate costs. Price, besides creating income, plays a major role as a strategic factor in developing competitive advantage in the market. The amount of income and promotion of a company regarding the positioning and finding a suitable position in the mind of customers are related to suitable pricing. Decision making for pricing is not an easy task and many factors are affecting in this decision. The reason for some companies which are not so active for export pricing is that they have a good sale in internal market because of their product character which has good internal market or in some countries due to limiting import regulation. These companies are worried about heir global competitive positions too, and need a prescription for their future activity because they also feel that in the global marketing acting ethnocentric will not be enough. Two main factors for this company to be considered are internal market condition and the amount of authority granted to export managers for declaring price to different customers. Below we will discuss kind of factors affecting pricing and kinds of pricing and demonstrate a model which could be important in export pricing for the global marketing pricing by considering the amount of authority for pricing and the conditions of internal market. A number of different pricing strategies are available to global marketers. An overall goal must be to contribute to company sales and profit objective worldwide. In this article we will review the theories relating to pricing, policies of pricing, and will discuss the practical view of companies corresponding to different price statement, and based on experience of the author, as a faculty member and export manager, a conceptual model for pricing will be offered.
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Customer- oriented strategies such as market skimming, penetration, and market holding can be used when customer perceptions, as determined by the value of equation, are used as a guide. Global pricing can also be based on other external criteria such as the escalations in costs when good are shipped long distance across national boundaries. The issue of global pricing can also be fully integrated in the product design process, an approach widely use by Japanese companies. Pricing in global markets must be evaluated at regular intervals and adjusted if necessary. Similarly pricing objectives may vary, depending on product’s life cycle stage and the country-specific competitive situation. Any pricing system should address price floor, price ceiling and optimum prices in each of national market in which the company operates. The pricing consideration for marketing outside the home countries are the reflection of quality in price, competitiveness, the kind of pricing objective i.e. penetration, skimming holding, the type of discount, market segmentation, the pricing option in case of costs increase or decrease, the logicalness of price by the host- country, and its laws and the probable dumping. Three major objectives known in pricing are: Market skimming Price penetration Market holding. Market Skimming The market skimming pricing strategy is an attempt to reach a market segment that is willing to pay a premium price for a product. In such case the product must create high value for buyers or the knowledge of customer regarding the technology used for the product is not sufficient. This pricing strategy is often used in the introductory phase of product life cycle, when both production capacity and competition are limited by setting high price the demand is limited
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to early adopters who are willing and able to pay the price. The goals of this pricing are maximize revenue on limited volume to match demand and to reinforce customers’ perception of high product value. Penetration Pricing Penetration pricing uses price as a competitive weapon to gain market position. The majority of companies, located in Pacific Rim, use this type of pricing. Scaleefficient plans and lo-cost labor allow these companies to attack the market. Usually a first- time exporter do not use this type of pricing because it may call for some losses for some length of time which his company cannot afford it. Some innovative companies, when their product is not patentable, use this strategy to achieve market saturation before the other competitors can coy. The sale volume it expects to achieve in the markets leads to scale economies and lower costs. Market Holding The market holding strategy is frequently adoptee by companies that want to maintain their share of the market. In single- country marketing, this strategy often involves reacting to price adjustments by competitors. One of the changes factors in the price in global marketing is the currency fluctuations which often trigger price adjustments. Adjusting prices to fit the competitive situation may mean lower profit margins. A strong home currency and rising costs in the home country may also force a company to shift its sourcing to in-country or thirdcountry manufacturing or licensing agreements, rather than exporting from home country, to maintain market share. Market holding means that a company must carefully examine all its costs to ensure that it will be able to remain competitive in target markets. Another strategy, frequently used by companies new to exporting is cost-plus to gain toehold in global marketplace. There are two cost-plus pricing methods: historical accounting cost method which defines cost as the sum of all direct and indirect manufacturing and overhead costs, and estimated future cost method
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which is used mostly in recent years. Cost –plus pricing requires adding up all costs required to get the product to destination, plus shipping and ancillary charges, and a profit percentage. It is relatively easy to arrive at a quote, assuming that accounting costs are available. This approach, however, ignores demand and competitive conditions in target market. Therefore this approach is either too high or too low in the light of market and competitive conditions. Novice exporters do not care because they react to the market opportunities rather than having proactive seeking for them. Price escalation is the increase in a product’s price as transportation, duty, and distributor margins are added to the factory price. Beginning exporters might use this approach to determine the CIF price plus any inland charges as duty, inland transportation, distributor margins etc.
USING SOURCING AS A STRATEGIC PRICING TOOLS
There are several options when addressing the problem of price escalation described earlier. Domestic manufacturers may be forced to switch to lower income, lower wages countries for the sourcing of certain components or even finished goods to keep costs and prices competitive. Some people believe low wage approach a one- time advantage, and cannot be substitute for ongoing creativity which causes value. Another option is to source 100 percent of a finished product offshore near the local markets. In this case the manufacturer can enter into one of the arrangements such as licensing, joint venture, or a technology transfer agreement. In this case the manufacturer has presence in the market and high costs of home land and transportation will no longer be an issue. Another option is a through audit of the distribution structure in the target market. A rationalization of the distribution structure can substantially reduce the total markups required to achieve distribution in international market. Rationalization may include selecting new intermediaries, assigning new responsibilities to old intermediaries, or establishing direct marketing operations. Exporters also encounter to dumping, which is sale of an imported product at a price lower than that normally charged in a domestic market or country of origin. Many countries have their own policies against dumping but the main point is
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how to prove a company is dumping and the time it take to get the losses from this action.
FACTORS AFFECTING PRICING DECISION
The final price for a product may be influenced by many factors which can be categorized into two main groups: Internal Factors - When setting price, marketers must take into consideration several factors which are the result of company decisions and actions. To a large extent these factors are controllable by the company and, if necessary, can be altered. However, while the organization may have control over these factors making a quick change is not always realistic. For instance, product pricing may depend heavily on the productivity of a manufacturing facility (e.g., how much can be produced within a certain period of time). The marketer knows that increasing productivity can reduce the cost of producing each product and thus allow the marketer to potentially lower the product’s price. But increasing productivity may require major changes at the manufacturing facility that will take time (not to mention be costly) and will not translate into lower price products for a considerable period of time. External Factors - There are a number of influencing factors which are not controlled by the company but will impact pricing decisions. Understanding these factors requires the marketer conduct research to monitor what is happening in each market the company serves since the effect of these factors can vary by market.
1. Marketing Objectives Marketing decisions are guided by the overall objectives of the company. While we will discuss this in more detail when we cover marketing strategy in a
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later tutorial, for now it is important to understand that all marketing decisions, including price, work to help achieve company objectives. Corporate objectives can be wide-ranging and include different objectives for different functional areas (e.g., objectives for production, human resources, etc). While pricing decisions are influenced by many types of objectives set up for the marketing functional area, there are four key objectives in which price plays a central role. In most situations only one of these objectives will be followed, though the marketer may have different objectives for different products. The four main marketing objectives affecting price include: Return on Investment (ROI) – A firm may set as a marketing objective the requirement that all products attain a certain percentage return on the organization’s spending on marketing the product. This level of return along with an estimate of sales will help determine appropriate pricing levels needed to meet the ROI objective. Cash Flow – Firms may seek to set prices at a level that will insure that sales revenue will at least cover product production and marketing costs. This is most likely to occur with new products where the organizational objectives allow a new product to simply meet its expenses while efforts are made to establish the product in the market. This objective allows the marketer to worry less about product profitability and instead directs energies to building a market for the product. Market Share – The pricing decision may be important when the firm has an objective of gaining a hold in a new market or retaining a certain percent of an existing market. For new products under this objective the price is set artificially low in order to capture a sizeable portion of the market and will be increased as the product becomes more accepted by the target market (we will discuss this marketing strategy in further detail in our next tutorial). For existing products, firms may use price decisions to insure they retain market share in instances where there is a high level of market competition and competitors who are willing to compete on price.
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Maximize Profits – Older products that appeal to a market that is no longer growing may have a company objective requiring the price be set at a level that optimizes profits. This is often the case when the marketer has little incentive to introduce improvements to the product (e.g., demand for product is declining) and will continue to sell the same product at a price premium for as long as some in the market is willing to buy.
2. Marketing Strategy Marketing strategy concerns the decisions marketers make to help the company satisfy its target market and attain its business and marketing objectives. Price, of course, is one of the key marketing mix decisions and since all marketing mix decisions must work together, the final price will be impacted by how other marketing decisions are made. For instance, marketers selling high quality products would be expected to price their products in a range that will add to the perception of the product being at a high-level. It should be noted that not all companies view price as a key selling feature. Some firms, for example those seeking to be viewed as market leaders in product quality, will deemphasize price and concentrate on a strategy that highlights non-price benefits (e.g., quality, durability, service, etc.). Such non-price competition can help the company avoid potential price wars that often break out between competitive firms that follow a market share objective and use price as a key selling feature.
3. Costs For many for-profit companies, the starting point for setting a product’s price is to first determine how much it will cost to get the product to their
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customers. Obviously, whatever price customers pay must exceed the cost of producing a good or delivering a service otherwise the company will lose money. When analyzing cost, the marketer will consider all costs needed to get the product to market including those associated with production, marketing, distribution and company administration (e.g., office expense). These costs can be divided into two main categories: Fixed Costs - Also referred to as overhead costs, these represent costs the marketing organization incurs that are not affected by level of production or sales. For example, for a manufacturer of writing instruments that has just built a new production facility, whether they produce one pen or one million they will still need to pay the monthly mortgage for the building. From the marketing side, fixed costs may also exist in the form of expenditure for fielding a sales force, carrying out an advertising campaign and paying a service to host the company’s website. These costs are fixed because there is a level of commitment to spending that is largely not affected by production or sales levels. Variable Costs – These costs are directly associated with the production and sales of products and, consequently, may change as the level of production or sales changes. Typically variable costs are evaluated on a perunit basis since the cost is directly associated with individual items. Most variable costs involve costs of items that are either components of the product (e.g., parts, packaging) or are directly associated with creating the product (e.g., electricity to run an assembly line). However, there are also marketing variable costs such as coupons, which are likely to cost the company more as sales increase (i.e., customers using the coupon). Variable costs, especially for tangible products, tend to decline as more units are produced. This is due to the producing company’s ability to purchase product components for lower prices since component suppliers often provide discounted pricing for large quantity purchases.
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Determining individual unit cost can be a complicated process. While variable costs are often determined on a per-unit basis, applying fixed costs to individual products is less straightforward. For example, if a company manufactures five different products in one manufacturing plant how would it distribute the plant’s fixed costs (e.g., mortgage, production workers’ cost) over the five products? In general, a company will assign fixed cost to individual products if the company can clearly associate the cost with the product, such as assigning the cost of operating production machines based on how much time it takes to produce each item. Alternatively, if it is too difficult to associate to specific products the company may simply divide the total fixed cost by production of each item and assign it on percentage basis.
1. Elasticity of Demand Marketers should never rest on their marketing decisions. They must continually use market research and their own judgment to determine whether marketing decisions need to be adjusted. When it comes to adjusting price, the marketer must understand what effect a change in price is likely to have on target market demand for a product. Understanding how price changes impact the market requires the marketer have a firm understanding of the concept economists call elasticity of demand, which relates to how purchase quantity changes as prices change. Elasticity is evaluated under the assumption that no other changes are being made (i.e., “all things being equal”) and only price is adjusted. The logic is to see how price by itself will affect overall demand. Obviously, the chance of nothing else changing in the market but the price of one product is often unrealistic. For example, competitors may react to the marketer’s price change by changing the price on their product. Despite this, elasticity analysis does serve as a useful tool for estimating market reaction. Elasticity deals with three types of demand scenarios:
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Elastic Demand – Products are considered to exist in a market that exhibits elastic demand when a certain percentage change in price results in a larger and opposite percentage change in demand. For example, if the price of a product increases (decreases) by 10%, the demand for the product is likely to decline (rise) by greater than 10%. Inelastic Demand – Products are considered to exist in an inelastic market when a certain percentage change in price results in a smaller and opposite percentage change in demand. For example, if the price of a product increases (decreases) by 10%, the demand for the product is likely to decline (rise) by less than 10%. Unitary Demand – This demand occurs when a percentage change in price results in an equal and opposite percentage change in demand. For example, if the price of a product increases (decreases) by 10%, the demand for the product is likely to decline (rise) by 10%. For marketers the important issue with elasticity of demand is to understand how it impacts company revenue. In general the following scenarios apply to making price changes for a given type of market demand: For elastic markets – increasing price lowers total revenue while decreasing price increases total revenue. For inelastic markets – increasing price raises total revenue while decreasing price lowers total revenue. For unitary markets – there is no change in revenue when price is changed. 2. Customer Expectations Possibly the most obvious external factors that influence price settings are the expectations of customers and channel partners. As we discussed, when it comes to making a purchase decision customers assess the overall “value” of a product much more than they assess the price. When deciding on a price marketers need to conduct customer research to determine
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what “price points” are acceptable. Pricing beyond these price points could discourage customers from purchasing. Firms within the marketer’s channels of distribution also must be considered when determining price. Distribution partners expect to receive financial compensation for their efforts, which usually means they will receive a percentage of the final selling price. This percentage or margin between what they pay the marketer to acquire the product and the price they charge their customers must be sufficient for the distributor to cover their costs and also earn a desired profit. 3. Competitive and Other Products Marketers will undoubtedly look to market competitors for indications of how price should be set. For many marketers of consumer products researching competitive pricing is relatively easy, particularly when Internet search tools are used. Price analysis can be somewhat more complicated for products sold to the business market since final price may be affected by a number of factors including if competitors allow customers to negotiate their final price. Analysis of competition will include pricing by direct competitors, related products and primary products. Direct Competitor Pricing – Almost all marketing decisions, including pricing, will include an evaluation of competitors’ offerings. The impact of this information on the actual setting of price will depend on the competitive nature of the market. For instance, products that dominate markets and are viewed as market leaders may not be heavily influenced by competitor pricing since they are in a commanding position to set prices as they see fit. On the other hand in markets where a clear leader does not exist, the pricing of competitive products will be carefully considered. Marketers must not only research competitive prices but must also pay close attention to how these companies will respond to the marketer’s
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pricing decisions. For instance, in highly competitive industries, such as gasoline or airline travel, competitors may respond quickly to competitors’ price adjustments thus reducing the effect of such changes. Related Product Pricing - Products that offer new ways for solving customer needs may look to pricing of products that customers are currently using even though these other products may not appear to be direct competitors. For example, a marketer of a new online golf instruction service that allows customers to access golf instruction via their computer may look at prices charged by local golf professionals for in-person instruction to gauge where to set their price. While on the surface online golf instruction may not be a direct competitor to a golf instructor, marketers for the online service can use the cost of in-person instruction as a reference point for setting price. Primary Product Pricing - As we discussed in the Product Decisions tutorial, marketers may sell products viewed as complementary to a primary product. For example, Bluetooth headsets are considered complementary to the primary product cell phones. The pricing of complementary products may be affected by pricing changes made to the primary product since customers may compare the price for complementary products based on the primary product price. For example, companies that sell accessory products for the Apple iPod may do so at a cost that is only 10% of the purchase price of the iPod. However, if Apple were to dramatically drop the price, for instance by 50%, the accessory at its present price would now be 20% of the of iPod price. This may be perceived by the market as a doubling of the accessory’s price. To maintain its perceived value the accessory marketer may need to respond to the iPod price drop by also lowering the price of the accessory. 4. Government Regulations Marketers must be aware of regulations that impact how price is set in the markets in which their products are sold. These regulations are primarily government enacted meaning that there may be legal ramifications if the
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rules are not followed. Price regulations can come from any level of government and vary widely in their requirements. For instance, in some industries, government regulation may set price ceilings (how high price may be set) while in other industries there may be price floors (how low price may be set). Additional areas of potential regulation include: deceptive pricing, price discrimination, predatory pricing and price fixing. Finally, when selling beyond their home market, marketers must recognize that local regulations may make pricing decisions different for each market. This is particularly a concern when selling to international markets where failure to consider regulations can lead to severe penalties. Consequently marketers must have a clear understanding of regulations in each market they serve.
ENVIRONMENTAL FACTORS AFFECTING PRICING
Marketers must deal with a number of environmental factors when making pricing decisions. Currency fluctuation, inflation, government controls and subsidies, competitive behavior, and market demand are among these factors. Some of these factors work in conjunction with others; for example, inflation may be accompanied by government controls. 1. Currency Fluctuation When currency fluctuation occurs, there are two options for pricing: one is to fix the price of products in country target market. In this case, any appreciation or depreciation of the value of the currency in the country of production will lead to gain or losses for the seller. The other option is to fix the price of products in home country currency. If it is done, any appreciation or depreciation of the home country currency will result in price increases or decreases for customers and no immediate consequences for the seller. In actual practice, a manufacturer and its distributor may work together to maintain Market share in international market. Either party, or both, may choose to take a lower profit percentage. In the long term contracts, both parties agree an exchange rate
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clause, which allows them to agree to supply and purchase at fixed prices in each company’s national currency. In this case if the exchange rate fluctuate within a specified range, say plus or minus of five percent, the agreed price will not be changed, but if more than that, say plus or minus of ten percent, then new discussion or negotiation for adjusting the prices should be opened. 2. Inflation Inflation, or a persistent upward change in price levels, is a worldwide phenomenon. Inflation requires periodic adjustments. These adjustments are caused by rising costs that must be covered by increased selling prices. An essential requirement when pricing in an inflationary environment is the maintenance of operating profit margins. LIFO costing method is prescribed by some practitioners under conditions of rising prices. 3. Government Control Government control can also limit the freedom to adjust prices, and the maintenance of margins should be compromised. In a country that is undergoing severe financial difficulties and is in the midst of a financial crisis (e.g., a foreign exchange shortage caused in part runaway inflation), government officials are under pressure to take some type of action. Governmental actions in the case of hard financial problems include use of broad or selective price controls, prior cash deposit requirements for imports, customs duties for imports, value added tariffs, proliferation of rules and regulations, and subsidization. All of these controls are against exporting pricing when a company wants to export products to an importing country which is under control of the government. In fact the more control rendered by a government the more difficult to enter in that country market. In this case the availability of this market is not so suitable. Pricing decisions are also bounded by competitive action. If competitors are manufacturing or sourcing in a lower costs country, it may be necessary to cut prices to stay competitive.
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The other fact is the study of relationship between quality and price. Recent four country international study found that there is a weak relation between price and quality. The authors concluded that the lack of strong price- quality relationship appears to be an international phenomenon (Faulds, 1994, 7:25). Consumers with limited information rely more on product style and appearance and less on technical quality as measured by testing organizations. Still some marketers believe that this relation is strong and has the major role in product value. The recent following model Created by a group of marketing lecturers from southern England based in Chi Chester, described in http://marketingteacher.com (2007) shows strong relationship between price and quality which offers four strategy of economy, when the price and quality are both low, penetration, when the price low yet the quality is high to get more market share or penetrate in a new market, skimming, when the price is high but the quality is high and the goods are not supplied by too many competitors, and premium, when the price and quality are both high and there is a uniqueness about the product or service.
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The knowledge of customer about the technology of new product and the amount of his or her awareness can play a major role in pricing. As much as the knowledge of a customer about the product is low, the producer can use this margin to skim the market or get a better premium from this market.
Transfer pricing refers the pricing of goods and services bought and sold by operating units or divisions of a single company. In other word, transfer pricing concerns intra corporate exchanges- transactions between buyers and sellers that have the same corporate parent. For example Toyota subsidiaries sell to, and buy from each other. This happens when the company expands and profit centers are shaped in the corporate financial picture. There are three alternative approaches to transfer pricing: 1. Cost based pricing 2. Market based transfer pricing 3. Negotiated prices. Cost Based Pricing Some companies using cost- based approach may arrive at transfer prices that reflect variable and fixed manufacturing costs only. Alternatively, transfer prices may be based on full costs, including overhead costs from marketing, R&D, and other functional areas. The way costs are defined may have an impact on tariffs and duties sales to affiliates and subsidiaries by global companies. Cost plus pricing is also based by costs but different approach. In this approach, profit must be shown for any product or service at every stage of movement through the corporate system. It may be set at certain percentage of fixed costs such as 15 percent of cost. It is unrelated to competitive and demand conditions but many exporters use it.
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Market Based Transfer Pricing Another approach to transfer pricing is market- based approach. A market –based transfer price is derived from the price required to be competitive in the international market. The volume level also plays a major role in pricing. To use market- based transfer prices to inter in a small market, third country sourcing may be required. This enables a company to establish its name or franchise in the market without committing to a major capital investment. Negotiated Prices A third alternative is to allow the organization affiliates to negotiate transfer prices among themselves. In some instances, the final transfer price may reflect costs and market prices, but this is not a requirement. (Horngren, Foster, 1991) In a research conducted by Horngren and foster (1991), was found that 46 percent of U.S. based companies, 33percent of Canadian, 41 percent of Japanese and 38 percent of U.K.-based companies use some form of cost based transfer pricing. Corporate costs and profits are also affected by import duties. The higher the duty rate, the more desirable is a low transfer price. The high duty creates an increase to reduce transfer prices to minimize the customs duty.
GLOBAL PRICING – THREE POLICY ALTERNATIVES
The companies also may use three policies on worldwide pricing: extension / ethnocentric, adaptation/poly centric and invention/ geocentric. Extension / Ethnocentric In the extension / ethnocentric policy, the price of an item is the same around the world and the importer absorb freight an import duties. Empirically in this policy, no information on competitive or market condition is required and does not
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respond to the every market neither it maximize the company profits in each national market nor globally. Its only advantage is to simply entering a market if it suit to their price which the exporter has no information about it. Adaptation / Polycentric In the adaptation / polycentric policy the exporter tries to match the price with any individual local market. This policy, in practice, permits subsidiary or affiliate manager to establish any price they feel is most desirable in their circumstances. This policy may cause product arbitrage, because of different prices in different location and enterprising business managers may use it and foster a grey market for the company’s product. It may also weaken the corporate strategies of the central company because all local market managers have the freedom to set the price for their markets. Different prices for different places may have another disadvantage, because it may send a signal to the rest of the world that is contrary to company interests. A price move anywhere in the world is known instantly all over the world specially by using the world wide webs in the internet by companies which makes the customers aware of the competitive price information. Invention / Geocentric The third and the best policy to international pricing is termed invention/ geocentric. Using this approach a company neither fixes a single price nor remains apart from subsidiary price decisions, but instead strikes intermediate positions. There are unique market factors, like local costs, income levels, competition, and local marketing strategies that should be recognized in arriving at pricing decisions. The reason we perceive it as the best policy is that local costs plus a return on invested capital and personnel fix the price floor for the long term. This approach lends itself to global competitive strategy. A global competitor will take in to account global markets and global competitors in establishing prices. Prices will support global strategy objectives rather than the objectives of maximizing
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performance in a single country. This policy forces the exporter to consider the said aspects of any market globally and focusing the company’s strategy as well. In the study of Samli and Jacobs (1994), for the pricing practices of U.S. multinational firms, they concluded that 70 percent of the firms standardized their prices, where as 30 percent used variable pricing in world market. They said, it would appear that the companies should consider renewing the pricing policies.
Pricing is one the marketing mix and reflects costs and competitive factors. The maximum absolute price for a product does not exist, yet for each market, the price should be fixed concerning the customer attitude. The goal of most marketing strategies is to determine a price which could be accountable for customer perception. Meanwhile it should not cause too much costs for the company. A company usually fixes prices regarding the value that a customer concerns for the product, and covers costs and provide a profit margin. Pricing strategies include increasing interests regarding the importance of the product in the market. We can use different pricing strategies, concerning the environmental factors of markets. Each company should determine competitive market, its costs for each market, the availability of them, and other environmental dimensions. Export managers, from their advantage point of their familiarities to markets should have enough authority to determine strategic prices for each market regarding the life cycle of the product in each market an their stability and profitability for that market. Export managers should be qualified and brilliant mind knowing the corporate strategy and acting different roles in different markets. But they should consider two things. The first is to program pricing strategies to respond the customer’s needs and to take the company profits in to account for the long term. Managers should recruit good and global experience marketing experts with broad strategic vision, make him to take and OJT course to get familiar with the firm and its internal and global target markets, and then give
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him room and responsibility, by granting authority to use his creation and innovation for price decision making to satisfy all customers and gain strategic income for the organization. The major findings of this article is classification of pricing theories in marketing based on point of delivery and introducing a conceptual model indicating different pricing strategies based on the internal market condition and the amount of authority granted to export or global marketing manager for pricing decisions with the emphasis on delegating high authority to expert and informed global marketing managers and warn local market oriented companies to think about the global competition and do not rely on the local government legal supports.
Keegan Warren “Global Marketing Management” Damon Darlin “Trade Strategies” Kotler Philip “Marketing Management”
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