Pricing Decisions

Basic Pricing Concepts

• Basic pricing considerations global marketing
1. Does the price reflect the products quality?
2. Is the price competitive?
3. Should the firm pursue market penetration, market
skimming, or another pricing objective?
4. What type of discount and allowance should the firm
offer its international customers?

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Basic Pricing Concepts
• Basic pricing considerations (cont’d)
5. Should prices differ with market segment?
6. What pricing options are available if the firm’s costs
increases or decrease?
7. Are the firm’s prices likely to be viewed by the host-
country government as exploitative?
8. Do the foreign country dumping laws pose a problem?
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 Demand Based Pricing Method

• Skimming Pricing
• Penetration Pricing
• Prestige Pricing
• Price Lining
• Odd-even Pricing
• Demand-backward Pricing
• Bundle Pricing
 Skiming pricing
• Set a high price for the introductory stage,
then lower the price when the competition
starts tight.
 Skiming Pricing
• Nokia N-70
• In 2005,
• This smartphone phone is oriented
towards games and music, and has a 3G
application..
• Price Rp. 3.800.000
Skiming Pricing
 Penetration Pricing
• the company tries to introduce a new product at a low price,
in the hope that it will be able to obtain a large sales volume
in a relatively short time
Penetration Pricing
 PRESTIGE PRICING

• set high prices to form a high image quality

product and are generally used for shopping
and specialty products
PRESTIGE PRICING
PRESTIGE PRICING
 Price Lining
• Lining pricing strategy is a strategy which
provides different price coverage on different
product lines.
 Price Lining
• Cinema 21 (Cineplex 21 Group) formed its
cinema network into 3 separate brands,
namely Cinema 21, Cinema XXI, and The
Premiere for different target markets.
Price Lining
• Prices on CITRA
products - hand and
body lotion -, have
different prices in
accordance with the
contents of different
extracts and
fragrances
 ODD-EVEN PRICING

• The strategy of setting

a price that is odd or
slightly below the
price that has been
determined with a
psychological goal the
buyer will think the
product to be
purchased is cheaper..
 DEMAND-BACKWARD
PRICING
• Strategi harga demand-
backward ialah
menentukan harga akhir
yang dapat diterima
oleh pelanggan dan
bekerja dibelakang
untuk menentukan apa
yang dapat dibebankan
oleh perusahaan
terhadap pelanggan
Demand-Backward Pricing
 BUNDLE PRICING
• Pricing by selling products in one package
with one specific price that is cheaper than
buying one unique product each.
 BUNDLE PRICING
• Blackberry Torch dengan harga
$69.99. Bila dibandingkan dengan
harga eceran, akan jatuh lebih mahal.
Seperti harga baterainya $24.99,
travel charger $9.99, sync/charge
Pod+micro SD card reader $26.99,
data cable $7.99, dan car charger
$6.99. Bila ditotal harganya mencapai
$76,95 dan selisih dengan harga
paket ialah $6,96.
 Global Pricing Objectives
and Strategies
• Profit-Based Objectives and Strategies
– Companies that seek competitive advantage by
pursuing differentiation strategies frequently use
• Marketing skimming strategies
– Attempt to reach a segment that is willing to pay a premium
price for a particular brand or for a unique product
– Appropriate in the introductory phase of the PLC, when both
production capacity and competition are limited

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Global Pricing Objectives
and Strategies
• Sales-Based Objectives and Strategies
– Setting sales-based price objectives and using
price as a competitive weapon to gain market
position
• Penetration pricing strategy
– Setting price levels that are low enough to quickly build
market share

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Global Pricing Objectives
and Strategies
• Cost-Based Pricing
– Two cost-based pricing methods
• Full cost method
– Defines cost as the sum of all past or current direct and
indirect manufacturing and overhead costs
• Estimated Future Cost Method
– Used in an attempt to estimate the future cost for all
component elements

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Global Pricing Objectives
and Strategies
• Cost-Based Pricing
– Advantage is simplicity
– Disadvantage is that this approach completely
ignores demand and competitive conditions in
target markets

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Global Pricing Objectives
and Strategies
• Price Escalation
– The cost-plus formula can drive up the final
selling price of exported products
• Price escalation
– F.O.B. (free on board)
• Buyer is responsible for the insurance and freight
– C.I.F. (cost, insurance, freight)
• Seller is responsible for the insurance and freight

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Environmental Influences
on Pricing Decisions
• Currency Fluctuations
– Marketing Holding Strategy
• Setting prices based on the competition in each market
and the ability and willingness of customers to pay
– Marginal-cost Pricing
• Entails setting the selling price equal to the variable
costs of producing one additional unit of output

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Environmental Influences
on Pricing Decisions
• Currency Fluctuations (cont’d)
– Price Transparency
• Means that buyers will be able to comparison shop
easily because good will be priced in euros as opposed
to marks, francs or lira
• Government Controls, Subsidies, Regulations
– Price Fixing
• Legal in Germany’s book publishing industry

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Global Pricing: Three Policy
Alternatives
• Extension or Ethnocentric Pricing Policy
– Per unit price of an item is the same regardless of
where in the world the buyer is located
• Advantage is extreme simplicity
• Disadvantage is it does not respond to the competitive
and market conditions of each national market

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Global Pricing: Three Policy
Alternatives
• Adaptation or Polycentric Pricing Policy
– Permits subsidiary managers to establish the price
they feel is most desirable in their circumstances
• Invention or Geocentric Pricing Policy
– A company neither fixes a single price worldwide
nor remains distant from subsidiary pricing
• Instead, the company strikes an intermediate position

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Gray Market Goods
• Gray Market Goods
– Trademarked products that are exported from one
country to another
• They are sold by unauthorized persons or organizations

• Parallel Importing
– When gray marketers bring a product produced in
one country into a second-country market
• To compete with authorized importers

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Dumping
• Dumping
– The sale of an imported product at a price lower
than that normally charged in a domestic market
– For proof that dumping has occurred in the U.S.,
• Both price discrimination and injury must be
demonstrated
• Price discrimination
– The practice of setting different prices when selling the same
quantity of “like-quality” goods to different buyers

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Transfer Pricing
• Transfer Pricing
– Concerns intracorporate exchanges
– Major alternative approaches to transfer pricing
• Cost-based transfer pricing
– Take the same forms as the cost-based pricing methods
• Market-based transfer pricing
– Derived from the price required to be competitive in the
international market (represents arm’s-length transaction)
• Negotiated transfer pricing
– Transfer price negotiated between organization affiliates

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Countertrade
• Countertrade
– Barter
• Direct exchange of goods or services between two parties
– Counterpurchase
• Each delivery in an exchange is paid for in cash
– Offset
• An arrangement whereby the government in the country
of import seeks to recover large sums of hard currency
spent on expensive purchases

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156

 Countertrade
• Compensation Trading
– Involves the seller providing equipment in return
for hard currency down payment and payment in
output produced by equipment
• Switch Trading
– A switch trader or bank steps into a countertrade
agreement when one of the parties is unwilling to
accept the goods received in a transaction

2002 – Chapter 12 Andrew P. Yap - FIU – MAR 4156