MGT382 Lecture 10 - Pricing & Distribution Decisions

All images in this presentation are used for educational purposes. Fair dealing.
INTERNATIONAL MARKETING
MGT
MGT382
382
Dr. Lien Monkhouse
Dr Nasreen Gul
Lecture 9: Pricing and distribution decisions

Agenda
Price in IM Mix
• Pricing strategies
– New product pricing
– Pricing standardisation vs. adaptation (differentiation)
• Factors impacting intl. pricing decisions
Place - Distribution around the world
• Marketing channel decisions
• Channel design: length, width, type, mix
• SCM, logistic and physical distribution
• 3 special issues
– Global retailing
– E-Channel
– Grey marketing
MGT
MGT382
382
Dr. Lien Monkhouse
Lecture 9: Pricing decisions

Pricing in IM mix
• As a value placed on a product

• Only area of IM mix where approach can be
changed rapidly without large direct cost
implications
• Link to international and global positioning:
country/culture of origin effects on price
perceptions (status/value)
What is an acceptable price?
Cannot Lacks
redeem Range of price points customer
costs acceptance
Price levels
Too Low Too High
Generic pricing procedure
1. Select pricing objectives

2. Consider the pricing Company Cost
triangle: Structures
(Non-market driven)
o Estimate costs
o Examine customers’
demand
Pricing
o Analyse competitors’ costs decisions
and prices
3. Select a pricing method
Customer Value Competitor
4. Set the final price Perceptions Activities
5. Adjust price (Market driven) (Market driven)
Cost-based pricing
In manufacturing:
• Cost plus (in manufacturing) Variable costs: vary with production
output
Price = costs + extra Fixed costs: remain the same
regardless of output volumes
• Mark-up (in retailing) (e.g., advertising, rent, etc)
Selling price = buying price +

markup VC/ unit £2
FC £200,000
Expected Sales 100,000 units
(or competition or demand Extra 10% of cost
based) What is the price?
----
Break-even analysis
• Question - if you price your product at P1, when can you break even?
• Break-even point: Total costs equal Total revenue
Total revenue or cost
(Source: Brassington & Pettit 2003,

Target costing
• Cost-based pricing
– Western cost accounting principles: use full
absorption cost method
– Rigid cost-plus pricing: Pricing decision without regards of
local market condition, host-country government’s views….
– Flexible cost-plus pricing: Ensure that prices are competitive
in the context of the particular market environment
 Start from the target

Price escalation
• Summation of all costs in distribution channel
– ex-works price, shipping costs, tariffs, distributor mark-up
• Tactics to counter:
– Lowering the export price from the factory
– Establishing local production of the product
– Rationalising the distribution process
– Pressurizing channel members to accept lower profit
margins
Pricing new products
Skimming High price
Market pricing
Penetration pricing Low price

Internal factors affecting

international pricing decisions
Firm-level factors
Product factors
• Corporate and marketing
objectives • Stage in PLC
• Competitive strategy • Place in product line
• Firm positioning • Substitutes
• Product , market • Most important product
development features
• Production location • Product positioning (USP)
• Available resources, • Product cost structure
inventory, shipping costs
• Market entry modes
External factors affecting

international pricing decisions
Market factors
Environmental factors
• Customers’ perceptions, expectations
• Government influences
and ability to pay
and constraints
• Need for product adaptation, market
• Use of non-payment and
servicing
leasing
• Nature of competition - Monopoly/
• Inflation Oligopoly/ monopolistic/ perfect competition
• Currency fluctuations • Competitors’ objectives, strategies,
• Business cycle stage relative strengths and weaknesses
• Market structure, growth, demand
elasticity
• Distribution channel discounting
pressure, grey market
Key pricing considerations

in international marketing
• Coordination: standardisation vs differentiation
• Internal: transfer pricing
• External: grey markets (parallel imports), currency issues,

terms of sales, non-payment
Pricing across countries

• Standardisation (extension or ethnocentric):
– price set by HQ irrespective of final destination
– importer to absorb freight and import duties
– fails to respond to each national market
• Differentiation:
– Adaptation - polycentric
• affiliate manager or distributors to establish price
• sensitive to market conditions but creates potential for gray
marketing
– Invention - geocentric
• intermediate course of action, take into account of global market
and competitors
• price to support global strategy and objectives, rather than
objectives of maximising performance in a single country
Transfer pricing
• When a company uses selective prices for internal
transactions (e.g. between two subsidiaries) (Ghauri & Cateora,
2010:451)
• Bases of transfer: At cost, arm’s length or cost plus

• Strategic use
– Create and maintain barriers to entry
– Avoid domestic tax liabilities
– Avoid foreign tax
• Ethically problematic  corporate reputation and brand
image
• Central control of transfer pricing essential
Grey markets impact

on pricing
• Parallel imports: products priced for one country (e.g.
USA)  bought by traders in USA  exported & sold
at profit in higher priced country (e.g. UK)
• MNEs find themselves competing in one country, with
their own product, being imported from another
country at a lower price (Cateora et al., 2010)
• Same product available at highly different prices in two
open markets e.g. within EU
• E.g: (Ghauri & Cateora, 2010): VW Golf Germany prices
Euro 3,000 higher than Italy
Currency Issues
• Price quotation: which currency?
• Exchange rates – fluctuations
• GBP (£): € 1.13 Nov2017; € 1.47 Nov2015

(Source: http://www.xe.com/currencyconverter/)
Source: Keegan and Green 2011

Images attributions
[1] Rock Cohen (2008). Copyright by Rock Cohen [Photograph]. Retrieved 21 September, 2014, from Flickr
https://www.flickr.com/photos/robdeman/2390666040 Reproduced with permission from the creator. Licensed
under the Creative Commons Attribution 2.0 Generic License.

[2] Steve Bowbrick (2007). Copyright by Steve Bowbrick [Photograph]. Retrieved 21 September, 2014, from Flickr
https://www.flickr.com/photos/bowbrick/654438440 Reproduced with permission from the creator. Licensed
under the Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic License.

[3] Xray40000 (2013). Copyright by Xray40000 [Photograph]. Retrieved 21 September, 2014, from Flickr
https://www.flickr.com/photos/sebastian_duesseldorf/9690447842 Reproduced with permission from the
creator. Licensed under the Creative Commons Attribution-NonCommercial 2.0 Generic License.
MGT 382
Lecture 9: Distribution decisions

What is Place / Distribution?

• New international market market entry option design
product’s route to the market
(Where it is sold to target segment within certain geographic territories at agreed price)
• Marketing channel: the product’s route to the market typically

involves other institutions outside of the focal firm
• "Marketing channel is a set of interdependent organisations
involved in the process of making a product or service
available for use or consumption" (Coughlan et al 2006, p.2)
• To meet a firm's distribution objectives
[1]
Culture impacts
on channel
(Based on de Mooij 2011, Usunier & Lee, 2005)
Channel aspects Traits that may differ across cultures
Shopping behaviour Shopping motives and activities vary across countries

 IDV: fun shopping, more impulsive buying
COL: shopping social activity, meet people
 Who is the shopper
 Shopping in mega store once a week vs. shopping every day
 Price consciousness
 Differences public and private consumption goods
COL/PDI+: social norms more important than price
 Degree of loyalty to the shop and the shop keeper?
Opening hours  Religion-based argument (restricted store opening hours)

 Femininity-based argument (store personnel should not be exploited)
Product range  Products may be banned because of religious or legal prescriptions
Willingness to serve  Human nature is good (friendliness towards shoppers)

customers vs. bad (indifference, negative view of service to others)
Distribution in
developing countries
• Consumers purchase food, soft
drinks and other items at “Mom
& Pop” stores, kiosks, and
market stalls in single use
packages
• 70% of Mexicans shop at these
stores
• P&G aids stores that carry at
least 40 P&G products with
displays, promo materials
[3]
Mexican storefront
MKT channel decisions
Source: Hollensen (2010)

1. Channel
length
(number of
levels)
 Consumer
channels
 Industrial
channels
 Service
channels
2. Channel width (coverage, intensity at various levels)
Intensive Selective Exclusive

distribution distribution distribution
Source: https://www.johnsonsbaby.co.uk/product/haircare/johnsons- Source: http://shop.panasonic.com/microwave-and-kitchen/microwave- Source: https://www.rolex.com/watches/day-date/m228238-0042.html

baby-shampoo ovens/commercial-microwave-ovens/NE-1054F.html
 Maximum number of  Number of outlets varies  Few outlets

outlets  Specialist retailer knowledge  Close retailer/consumer
 Maximum availability  Shopping products
relationship, high brand
 Convenience products loyalty
 Medium number of potential  Specialty products
 High number of purchasers  Low number of potential
potential purchasers  Occasional purchase purchasers
 High purchase frequency  Low purchase frequency
frequency  Medium level of planning for  High level of planning for
 Low level of planning purchases purchases
for purchases  Medium price  High price
 Low price

3. Channel mix (combination of methods to make

product available – multi-channel)
From: To:
Catalogue Direct marketing
Kiosks
[7] E- channels
Physical store
[8]
Telesales Door to door
Source: http://www.clipartmasters.com/no-talking-on-cell-phone-
4. Type of intermediaries for each level
 Self-own vs.
Independent
 Depending on external
and internal factors
- Manufacturer’s sales force

Expatriates, host country or third country
- Manufacturer’s representatives
 Industrial distributors
Sales force selection (Honeycutt & Ford 1995)

5. International Channel relationships
• Selection and management of international channel intermediaries

- commitment, trust, power, dependence: culture often a driving force
• Guanxi, Keiretsu, Schicksalverbundenhei, The Global Village, The Bamboo Network
Keiretsu

SCM, physical distribution,

logistics
SUPPLY CHAIN SYSTEM
Manufacturing management Distribution management
Supplier Manufacturer Intermediaries Customers
Raw materials Finished Order processing

Parts products Storage facilities
Packaging Inventory
Materials Transportation
Communication
Logistic management
(Source: based on Drucker 1962, Fernie 2003, Pelton et al 2002, Rosenbloom 2006)
Terms of sales
(Incoterms 2010)
EXW Ex-works(…named place)

FCA Free carrier (…named place)
CPT Carriage paid to (…named place of destination)
CIP Carriage and insurance paid to (…named place of destination)
DAT Delivered at terminal (…named terminal at named port of destination)
DAP Delivered at place (…named place of destination)
DDPDelivery duty paid
FAS Free alongside ship (…named port of shipment)
FOB Free on board (…named port of shipment)
CFR Cost and freight (…named port of destination)
CIF Cost, insurance and freight (…named port of destination)
Source: https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-rules-2010/
Special issue 1: Global retailing

• Environmental factors
– Saturation in the home country market
– Recession or other economic factors
– Strict regulation on store development
– High operating costs
• Critical question
– What advantages do we
have relative to the
local competition?
[9]
Retailers
(Hill & O’Sullivan 2004)
Retailer’s functions
 Sorting
 Accumulation
 Breaking down bulk
 Assortment
 Convenience
 Promotion
[10]
Servicescape:
retailing like theatre
• ‘Store gestalt’
– Store image
– Store atmospherics: decor, smells, temperature, displays
– In-store decision-making
– Temporal factors, e.g. time to make purchases
– Sales people and other customers
• POP stimuli
– product samples, elaborate package displays, place-based media, and
in-store promotional materials
• Impacts of culture:
– Presentation/ categorisation of merchandising, design, aesthetics,
fresh/clean, salesperson, service, treatment of children, female/ male
shoppers etc.
Furnishings
Furnishings
Air
Air Colours
Colours
condition
condition
Aroma
Aroma Textures
Textures
STORE
Atmospherics
Comfort
Comfort Cleanliness
Cleanliness
Staff
Staff Sound
Sound
demeanour
demeanour
Light
Light
(Hill & O’Sullivan 2004, p.295)
Special issue 2: E-channels
• Internet & related media (mobile devices, interactive & social media)
are dramatically altering distribution
• Online transaction through PayPal, Protx
• Related e-terms: e-business, e-commerce, e-tailing, e-marketing
• Click versus brick OR omnichannel view
• Global e-commerce:
– Business to Business (B2B)
– Business to Consumer (B2C)
– Consumer to Consumer (C2C, P2P)
Trends in e-Channels
(Based on Hollensen 2007)
No
Increasing disintermediation
disintermediation
Manufacturer
Manufacturer Wholesalers
Wholesalers Retailers
Retailers Buyer
Buyer
Increasing
inefficiency Manufacturer
Retailers Buyer
Buyer
(buyer has to visit
many different
manufacturers to
decide on best Manufacturer
Retailers Buyer
Buyer
price & offer)
High degree of
disintermediation
New situation:
Manufacturer
Manufacturer e-tailer/
e-tailer/ informediary
informediary Buyer
Buyer
reintermediation
Disintermediation Reintermediation
Intermediaries become Shifting, changing, or adding

superfluous because producers gain middlemen to the channel
exposure to vast numbers of
customers in cyberspace
Amazon.com
Auto-By-Tel
Dell Computer Corp.
Corp. Peapod, Inc.
Special issue 3: Grey marketing
Unauthorised
Authorised
Strategies to reduce
grey marketing
• Seek legal redress
• Change the marketing mix
– Product strategy
– Pricing strategy
– Warranty strategy
– Communicate
[12]
Images attributions
[1] I-5 Design & Manufacture (2007). Copyright by I-5 Design & Manufacture [Photograph]. Retrieved 21
September, 2014, from Flickr https://www.flickr.com/photos/i5design/4886682532 Reproduced with permission
from the creator. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic
License.

[2] Luke Zeme (2012). Copyright by Luke Zeme [Photograph]. Retrieved 21 September, 2014, from Flickr
https://www.flickr.com/photos/lukezemephotography/8233073411 Reproduced with permission from the creator.
Licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic License.
[3] Emily Hoyer (2007). Copyright by Emily Hoyer [Photograph]. Retrieved 21 September, 2014, from Flickr
https://www.flickr.com/photos/flavor32/438222001 Reproduced with permission from the creator. Licensed under
the Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic License.

[4] Dorli Photography (2012). Copyright by Dorli Photography [Photograph]. Retrieved 21 September, 2014, from
Flickr https://www.flickr.com/photos/dorlino/8660083757/in/photostream/ Reproduced with permission from the
creator. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic License.

[5] Angel Abril Ruiz (2012). Copyright by Angel Abril Ruiz [Photograph]. Retrieved 21 September, 2014, from Flickr
https://www.flickr.com/photos/aabrilru/6832155239 Reproduced with permission from the creator. Licensed

[6] Ahmad Nawawi (2011). Copyright by Ahmad Nawawi [Photograph]. Retrieved 21 September, 2014, from Flickr
https://www.flickr.com/photos/ahmadnawawi/6326052575 Reproduced with permission from the creator.
Licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic License.

[7] hjl (2012). Copyright by Melina Stathopoulos [Photograph]. Retrieved 22 September, 2014, from Flickr
https://www.flickr.com/photos/hjl/7540743972 Reproduced with permission from the creator. Licensed under the
Creative Commons Attribution-NonCommercial 2.0 Generic License

[8] The Sixth Ward (2013). Copyright by The Sixth Word [Photograph]. Retrieved 22 September, 2014, from The
Sixth Ward http://www.sixthward.us/2013/01/whos-knocking-at-your-door.html Reproduced with permission
from the creator. Licensed under the Creative Commons Attribution-ShareAlike 3.0 Unported License.

[9] Jerry Wong (2011). Copyright by Jerry Wong [Photograph]. Retrieved 21 September, 2014, from Flickr
https://www.flickr.com/photos/wongjunhao/6180716843 Reproduced with permission from the creator.
Licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic License.

[10] Otis Yang (2011). Copyright by Otis Yang [Photograph]. Retrieved 21 September, 2014, from Flickr
https://www.flickr.com/photos/otis0329/9123574165 Reproduced with permission from the creator. Licensed
under the Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic License.
[11] Maria Elena (2014). Copyright by Maria Elena [Photograph]. Retrieved 23 September, 2014, from Flickr
https://www.flickr.com/photos/melenita/15086864676 Reproduced with permission from the creator. Licensed

[12] Gordon Joly (2007). Copyright by Gordon Joly [Photograph]. Retrieved 21 September, 2014, from Flickr
https://www.flickr.com/photos/loopzilla/439516532 Reproduced with permission from the creator. Licensed
under the Creative Commons Attribution-ShareAlike 2.0 Generic License.

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All images in this presentation are used for educational purposes. Fair dealing.

Lecture 9: Pricing and distribution decisions

Lecture 9: Pricing decisions

• As a value placed on a product

What is an acceptable price?

Generic pricing procedure

1. Select pricing objectives

Selling price = buying price +

(Source: Brassington & Pettit 2003,

 Start from the target

Pricing new products

Skimming High price

Penetration pricing Low price

Internal factors affecting

External factors affecting

Key pricing considerations

• Coordination: standardisation vs differentiation

• Internal: transfer pricing

• External: grey markets (parallel imports), currency issues,

Pricing across countries

• Bases of transfer: At cost, arm’s length or cost plus

Grey markets impact

• Price quotation: which currency?

• Exchange rates – fluctuations

• GBP (£): € 1.13 Nov2017; € 1.47 Nov2015

Source: Keegan and Green 2011

Lecture 9: Distribution decisions

What is Place / Distribution?

• Marketing channel: the product’s route to the market typically

Channel aspects Traits that may differ across cultures

Shopping behaviour Shopping motives and activities vary across countries

Opening hours  Religion-based argument (restricted store opening hours)

Willingness to serve  Human nature is good (friendliness towards shoppers)

MKT channel decisions

Source: Hollensen (2010)

2. Channel width (coverage, intensity at various levels)

Intensive Selective Exclusive

Source: https://www.johnsonsbaby.co.uk/product/haircare/johnsons- Source: http://shop.panasonic.com/microwave-and-kitchen/microwave- Source: https://www.rolex.com/watches/day-date/m228238-0042.html

 Maximum number of  Number of outlets varies  Few outlets

MKT channel decisions

Source: Hollensen (2010)

3. Channel mix (combination of methods to make

4. Type of intermediaries for each level

- Manufacturer’s sales force

Sales force selection (Honeycutt & Ford 1995)

5. International Channel relationships

• Selection and management of international channel intermediaries

MKT channel decisions

Source: Hollensen (2010)

SCM, physical distribution,

Manufacturing management Distribution management

Supplier Manufacturer Intermediaries Customers

Raw materials Finished Order processing

EXW Ex-works(…named place)

Special issue 1: Global retailing

Special issue 2: E-channels

• Online transaction through PayPal, Protx

• Related e-terms: e-business, e-commerce, e-tailing, e-marketing

• Click versus brick OR omnichannel view

Intermediaries become Shifting, changing, or adding

Special issue 3: Grey marketing

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