You are on page 1of 15

By :

Prof. Amit Kumar

07/06/10 1
Global Marketing Management Global Pricing Strategies

07/06/10 2
IILM-GSM
Global Marketing Management Global Pricing Strategies

Contents
• International Pricing Compared to Domestic Pricing
• International Pricing Objectives/ Strategies
• International Pricing Framework
• Pricing Approaches for International Markets
 Cost-based Pricing
 Full-cost Pricing
 Marginal cost pricing
 Market-based Pricing
• Countertrade as a Pricing Tool
• Terms of Payment in International Marketing

07/05/10 3
IILM-GSM
Global Marketing Management Global Pricing Strategies

International Pricing Compared to


Domestic Pricing
In International markets, however, pricing decisions are
much
more complex, because they are affected by a number of
additional external factors, such as

• Fluctuation in Exchange Rates


• Accelerating Inflation in Certain Countries
• Use of alternative payment methods such as leasing,
barter and counter-trade

07/05/10 4
IILM-GSM
Global Marketing Management Global Pricing Strategies

International Pricing Objectives

n order to determine the price of a new product in the

nternational market, the objectives are as:

aximum Current Profit

aximum Market share


SKIMMIMG High price

aximum Market Skimming


PENETRATION
PRICING
roduct-Quality Leadership
07/05/10
Low price
5
IILM-GSM
Global Marketing Management Global Pricing Strategies

International Pricing Framework


INTERNAL EXTERNAL

Firm-Level Factors Environmental Factor


• Corporate & marketing • Government influences and
objectives constraints: import control,
• Competitive strategy taxes, price control
• Firm positioning • Inflation
• Product development • Currency fluctuation
• Production location • Business cycle stage
• Market entry modes

Product Factors Market Factors


• Stage in PLC • Customers’ perceptions
• Place in product line • Customers’ ability to pay
• Important product features • Nature of competition
• Product positioning • Competitors’ objectives,
• Product cost structure strategies and relative SW
(manufacturing, experience • Grey market appeal
effects, etc)

Pricing Strategies
• Pricing level (first-time)
07/05/10 6
IILM-GSM
Global Marketing Management Global Pricing Strategies

International Pricing Framework


INTERNAL EXTERNAL

Firm-Level Factors Environmental Factor

Product Factors Market Factors

Pricing Strategies
• Pricing level (first-time) Other elements of
• Price changes over PLC
• Pricing across products marketing mix
• Pricing across countries

Terms of business
• Terms of sale
• Terms of payment

Firm performance
Sales, shares, contribution
margins, profits, image etc.
07/05/10 7
IILM-GSM
Global Marketing Management Global Pricing Strategies

Pricing Approaches for International


Markets

he various approaches/ strategies used for pricing in

nternational markets are as:

ost-based Pricing

ull Cost Pricing

arginal Cost Pricing


07/05/10 8
IILM-GSM
Global Marketing Management Global Pricing Strategies

Pricing Approaches for International


Markets: Full Cost Pricing
• It includes adding a mark-up on the product’s cost to
determine price.
• Now assume, manufacturer wants to earn a 20 % markup
on sales. The manufacturer’s markup price is given by:

UNIT COST
Markup price =
(1- Desired return on sales)

e.g. Phillips, wanted to make a profit on each player but


Japanese competitors priced low and succeed in
building their market share rapidly.

07/05/10 9
IILM-GSM
Global Marketing Management Global Pricing Strategies

Pricing Approaches for International


Markets: Marginal Cost Pricing

Marginal Cost
o s ts (MC)
l C
t a
To
Total Cost

Variable
Cost

Fixed Cost
Variable Cost

Domestic Sales Exports

07/05/10
Volume 10
IILM-GSM
Global Marketing Management Global Pricing Strategies

Pricing Approaches for International


Markets: Market-based Pricing
INCOTERMS 2000 and its Applicability
Category Applicable for Applicable for all
sea transport modes of transport
only (including water)
Departure terms EXW (ex-works)
Shipment terms, FAS (Free alongside ship) FCA (Free carrier)
main carriage unpaidFOB (Free on board)

Shipment terms, CFR (cost and freight) CPT (carriage paid to)
main carriage unpaidCIF (cost, insurance and CIP (carriage and insurance
freight) paid to)

Delivery terms DES (delivered ex ship) DAF (delivered at frontier)


DEQ (delivered ex quay) DDU (delivered duty unpaid)
DDP (delivered duty paid)

IILM-GSM
Global Marketing Management Global Pricing Strategies

Pricing Approaches for International


Markets: Market-based Pricing
Top-down Calculation for International Pricing
Consumer Price 1160
VAT 160 + 16%
Market Price minus VAT 1000
Margin retailer 250 = 25%
Price to retailer 750
Margin wholesaler 90 + 12%
Price to wholesaler 660
Margin to importer 33 + 05%
Landed-cost Price 627
Import duties 110 + 20%
Other costs (storage, banking) 17
CIF (port of destination) 500
07/05/10 12
IILM-GSM
Global Marketing Management Global Pricing Strategies

Pricing Approaches for International Markets:


Market-based Pricing
Top-down Calculation for International Pricing
CIF (port of destination) 500
Transportation costs 130
Insurance costs 6
FOB (port of shipment) 364
Transportation costs factory to port 34
Export price ex-works (EXW) 330
Factory cost price 300
Export profit (per unit) 30

The ‘ex-works’ price US$ 330 is 28.4% of the price paid by the
consumer. It works out to be a ‘multiplier’ of 3.5. This
‘multiplier’ is used as a calculating aid while offering price
quotations in international markets.
IILM-GSM
Global Marketing Management Global Pricing Strategies

Different Types of Countertrade

ountertrade occurs when a firm accepts something than


money as payment for its goods or services. Thus,
countertrade is essentially a barter trade.
Counter
Barter
Purchase

CounterTrade

Buy-back Offset

Switch
07/05/10 Trading 14
IILM-GSM
Global Marketing Management Global Pricing Strategies

Terms of Payment in International


Transaction
The Five Principal Means of Payment in international trade,
ranked in order of increasing risk to the exporter, are:
1. Cash in Advance
Open
2. Letter of Credit Account
3. Draft
4. Consignment Consignment
Cash in
Advance
5. Open Account

International
Trade

Letter of
Draft
Credit
07/05/10 15
IILM-GSM