Global Pricing Decisions

Module 6

Exhibit 12-1:
Retail Price Comparison across
Cities

Price Escalation
The Lower Prices are at Home
London
$ 1.23

Paris
$ 7.07

7.50

10.50

7.89

17.29

4.55

Levi 501 jeans

39.99

74.92

75.40

79.73

54.54

Ray-Ban sunglasses

45.00

88.50

81.23

134.49

89.39

Sony Walkman

59.95

74.98

86.00

211.34

110.00

Nike Air Jordan

125.00

134.99

157.71

172.91

154.24

840.00
691.00
768.49
Madrid Stockholm Berlin
16.09
17.82
15.31

1,054.42
Rome
20.67

Aspirin
Movie

Nikon camera
Mariah Carey CD
Windows 98
Diapers

New York
$ 0.99

629.95
Los Angeles
16.22

Tokyo Mexico City

$ 6.53
$ 1.78

117.99

123.94

179.79

211.20

264.46

13.52

5.03

5.42

6.86

10.55

SOURCE: Norihiki Shirouzu, Luxury Prices for U.S. Goods No Longer Pass Muster in Japan, Wall
Street Journal, February 8, 1996, p. B1; and Elizabeth Fleick, The Cost of Europe: Buyer Beware,
Europeans Are Getting Mad as Hell about Prices, Time International, December 13, 1999, p. 38.

Price Promotions in Chinese

Cultures with End-8 Prices

Introduction

Global pricing is one of the most critical and

complex issues in international marketing.
Price is the only marketing mix instrument
that creates revenues. All other elements
entail costs.
A companys global pricing policy may make
or break its overseas expansion efforts.
Multinationals also face the challenges of
how to coordinate their pricing across
different countries.

Introduction
Pricing for overseas

markets is more complex

because management
must be concerned with
Foreign National Pricing
Domestic pricing in
another country
International Pricing
Setting prices of goods
for export for both
unrelated and related
firms

Pricing Impact

Pricing is especially important

in international marketing
strategy decisions, due to its
effect on product positioning,
market segmentation,
demand management, and
market share dynamics.

Pricing Considerations

Nature of the product

Production plant locations
Distribution system used
Economic climate
Currency fluctuations and
exchange rates

International Pricing Strategies

Company Internal
Factors
Profitability

Analytic
Transports Costs
Dimensions Tariffs

Taxes
Production Costs
Channel Costs

DecisionMaking

DecisionMaking

Environmental
Factors

Market Factors
Income Levels
Competition
Customers Culture

Foreign Exchange
Rates
Inflation Rates
Price Controls
Regulations

Market-by-Market
Pricing

International
Pricing
Strategies

Uniform Pricing

Managerial
Issues

Financing International
Transaction

Source of Financing

Transfer Pricing
Foreign Currencies
Parallel Imports/Grey
Markets
Export Price Escalation
Global Pricing Strategies

Risks
Customer-Arranged
vs.
Supplier-Arranged

Commercial Banks
Governments
Non-cash
Transactions:
2005 Counter-trading
Prentice Hall
Source: Jeannet & Hennessey, 2001

Global Pricing Objectives and

Strategies

Managers must determine the objectives

for the pricing objectives

Unit Sales
Market Share
Return on investment

They must then develop strategies to

achieve those objectives

Penetration Pricing
Market Skimming

Drivers of Foreign Market Pricing

Customer Demand
Competition

Distribution Channels

Cross-Border Price Differentials

Variations in Trade Margins and Length of
Margins
Issues of Everyday Low Prices (EDLP)
Parallel Imports (Gray Market)

Government Policies

Approaches to International Pricing

1.

There
There are
are several
several approaches
approaches to
to pricing
pricing in
in international
international markets,
markets, which
which
include:
include:

Full-Cost Pricing: no unit of a similar product is different from any other unit in
terms of cost, which must bear its full share of the total fixed and variable cost.

Prices
Prices are
are often
often set
set on
on aa cost-plus
cost-plus basis,
basis, i.e.,
i.e., total
total costs
costs plus
plus aa profit
profit
margin
margin

2.

Variable-Cost Pricing: firms regard foreign sales as bonus sales

and assume that any return over their variable cost makes a
contribution to net profit

This
This isis aa practical
practical approach
approach to
to pricing
pricing when
when aa company
company has
has high
high fixed
fixed costs
costs
and
and unused
unused production
production capacity
capacity

Approaches to International Pricing

3.

Skimming Pricing: This is used to reach a segment of the market that is

relatively price insensitive and thus willing to pay a premium price for a
product

4.

Penetration Pricing: This is used to stimulate market

growth and capture market share by deliberately offering
products at low prices

ItIt is
is used
used to
to acquire
acquire and
and hold
hold share
share of
of market
market

Market Skimming and Financial

Objectives

Market Skimming

Charging a
premium price
May occur at the
introduction stage
of product life cycle
Sony Ad. for camcorders

Penetration Pricing and NonFinancial Objectives

Penetration Pricing

1979 Sony Walkman

Charging a low
price in order to
penetrate market
quickly
Appropriate to
saturate market
prior to imitation by
competitors

Approaches to International Pricing

Skimming versus Penetration Pricing

Shoppers Await Opening of First Wal-Mart Outlet in China

Price Coordination

The following considerations will be

necessary when developing a global
pricing strategy:
1.
2.
3.
4.
5.
6.
7.

Nature of customers
Amount of product differentiation
Nature of channels
Nature of competition
Market integration
Internal organization
Government regulation

Dumping
11-18

In international trade, this occurs when

one country exports a significant amount
of goods to another country at prices
much lower than in the domestic market

Dumping occurs when imports

are sold at an unfair price.

Countertrade

Countertrade means exchanging goods or

services which are paid for, in whole or part, with
other goods or services, rather than with money
Forms of Countertrade

Simple barter

Clearing agreement: clearing account barter

with no currency transaction required

Switch trading: Practice in which one company

sells to another its obligation to make a purchase in
a given country
Buyback (compensation): 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.

Countertrade

Forms of Countertrade

Counter Purchase: Sale of goods and

services to one company in other country by a
company that promises to make a future
purchase of a specific product from the same
company in that country
Offset: Agreement that a company will offset a
hard - currency purchase of an unspecified
product from that nation in the future. Agreement
by one nation to buy a product from another,
subject to the purchase of some or all of the
components and raw materials from the buyer of
the finished product, or the assembly of such
product in the buyer nation.

Exhibit : Classification of Forms of

Countertrade

Countertrade

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

Cartel

A cartel exists when various companies producing

similar products or services work together to control
markets for the types of goods and services they
produce. OPEC
The cartel association may use formal agreements
to set prices, establish levels of production and sales
for the participating companies, allocate market
territories, and even redistribute profits.
In some instances, the cartel organization itself
takes over the entire selling function, sells the goods
of all the producers, and distributes the profits.

Thank You