Global Marketing Management

Chapter 12 Global Pricing

Warren J. Keegan
 Overview
 Basic Pricing Concepts
 Environmental Influences on Pricing Decisions
 Global Pricing Objectives & Strategies
 Gray Market Goods
 Dumping
 Transfer Pricing
 Three Policy Alternatives
 Summary

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 Learning Objectives
 Know about the complexity of international price setting
 Appreciate which external & internal factors influence
international pricing
 Learn about different approaches to setting prices
 Be aware of factors promoting or inhibiting
international price standardisation
 Know how to react to dumping by competitors
 Learn which key issues are involved in transfer pricing

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8 Pricing Considerations

 Does the price reflect  Differ by market

the product’s quality? segment
 Is it competitive?  Options in case of cost
 Penetration, increase or decrease
skimming, or other  Viewed as exploitative
 Discounts &  Dumpling laws
allowances

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 Environmental Influences on Pricing
Decisions (1)
 Currency Fluctuations
 Two positions:
 Fix prices in country target markets
 Fix prices in home-country currency
 Pricing should be consistent with the company`s
marketing strategy

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Environmental Influences on Pricing
Decisions (2)

 Exchange Rate Clause

 Allows the buyer & selller to agree to supply &
purchase at fixed prices in each company’s
national currency
 Designed to protect bother from unforeseen
large swings in currencies

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Environmental Influences on Price
Decisions (3)

 Inflationary Environment
 Require periodic adjustments due to rising costs
 Must maintain operating profits
 LIFO – last in – first out is more appropriate

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 Environmental Influences on Pricing
Decisions (4)
 Government Controls & Subsidies
 In countries with severe financial difficulties, governments
may restrict price increases or prescribe fixed prices
 Competitive Behaviour
 Pricing decisions are also dependent on the nature of demand
and competitive action

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Market Skimming

 Deliberate attempt to reach a segment that

is willing to pay a premium price
 Often used in introductory phase of product
life cycle
 Goal is to maximize revenue on limited
volume & reinforce customer’s perception
of high product value

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 Penetration Pricing
 Uses price as a competitive weapon to gain
market position
 Practiced by many companies in Pacific Rim
 Means that the product may be sold at a loss for
a certain time to gain market share
 Companies new to exporting cannot absorb such
losses

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Market Holding

 Dictates that source-country currency

appreciation will not be automatically
passed on in the form of higher prices
 May accept lower margins
 May have to shift production to other
countries or licensing

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 Cost-Plus Price Escalation
 Adding up all the costs required to get the product to
where it is sold
 All costs incurred in getting a product to an international
market are taken into account
 Sometimes ignores competitive conditions
 Mostly used by companies new to foreign business

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Gray Goods

 Trademarked products that are exported

form one country to another where they are
sold by unauthorized persons or
organizations
 Bring a product produced in one country
into another in competition with authorized
importers – parallel importing

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 Dumping
 A company exports a product at a price lower than the
price it normally charges in its own home market
 Dumping is an important global pricing issue, because it
is sometimes regarded as unfair competition
 Organisations like the WTO or OECD have issued
guidelines how to treat these problematic situations

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 Transfer Pricing
 Pricing transactions between buyers and sellers that
belong to the same corporation
 The approach used will vary with the nature of the firm:
 Cost-Based Transfer Pricing
 Market-Based Transfer Pricing
 Negotiated Transfer Pricing

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 Tax Regulations & Transfer Prices
 Companies sometimes use transfer prices to shift profits
from high-tax to low-tax countries
 The principle of arm`s length is a way of establishing a
transfer price between company units. The price shall
amount to what two independent, unrelated entities
would negotiate

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3 Policy Alternatives

Extension/ethnocentric
 Price is the same around the world
 Importer absorbs freight & import duties
Adaptation/polycentric
Permits subsidiary to establish price
Invention/geocentric
Strikes and intermediate position
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 Summary
 Different approaches to price setting
 Market Skimming
 Penetration
 Market Holding
 Cost Plus Price Escalation
 Gray Market: Unauthorized distributors
 Dumping: selling products in international markets at
prices below those in the home country
 Transfer Pricing: intracorporate exchanges

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