6 - establishment of prices in foreign markets Flashcards
1
Q
There are a few things companies need to take into account when establishing their International Pricing Strategy: (7 C’s)
A
- COSTS
- COMPETITORS
- CUSTOMERS
- CULTURAL DIFFERENCES
- CHANNELS OF DISTRIBUTION
- CURRENCY RATES
- CONTROL BY GOVERNMENT
2
Q
Primary factors:
A
- COSTS: All costs related to the product itself (development, creative, production, distribution, storage, advertising, labour, etc.) International transportation and related costs like freight, insurance and handling need to be considered as well.
- COMPETITORS: Analysing your competitors’ product and establishing what their pricing strategy is in order to make your product stand out from the rest.
- CUSTOMERS: International customers will have a different perception of the value of the product compared to domestic markets due to many factors. It should also be noted that customers today are able to instantly compare their prices with domestic prices on the internet.
3
Q
Secondary factors:
A
- CULTURAL DIFFERENCES: The international pricing decision requires a comprehensive understanding of the markets’ culture as well as the wants and needs of its inhabitants, including their perceptions of the value of your brand and products and those of your competitors.
- CHANNELS OF DISTRIBUTION: Lengthening channels of distribution means that more people are going to be handling your product including importers and wholesalers which causes not only cost escalation but increases distribution complexities.
- CURRENCY RATES: The complexities of multiple currencies which are subject to exchange rate fluctuations plus conversion costs.
- CONTROL BY GOVERNMENT: Governmental and bureaucratic controls and regulations can be complex. Some countries have price control over some products like pharmaceuticals, fuel and food.
4
Q
Price strategies
A
1 SKIMMING PRICING 2 PENETRATION PRICING 3 PRODUCT LINE 4 PSYCHOLOGICAL 5 OPTIONAL 6 PREMIUM 7 BUNDLE
5
Q
SKIMMING PRICING strategy
A
- Setting the highest possible initial price for a new product and then, lowering it progressively over time as competitors rise.
- Best for: short term profit maximization and only possible for differentiated products (there is no credible competition in the short run)
- Example: Apple, introducing a new iPhone model every year, adopts the skimming policy across its international markets.
6
Q
Price skimming ADVANTAGES
A
- Gaining a low market share, but with high margins
- Insight into what a consumer are willing to pay
- Aura of prestige around your product
- If the initial price is too high, you can easily lower it
- Late adopters might be pleased to get the prestigious product at a bargain price → goodwill
7
Q
Price skimming DISADVANTAGES
A
- Large profits attract competitors
- Small market share could make the firm vulnerable to local competitors
- Maintaining the prestige can be expensive and difficult in foreign markets
- If product is cheaper in home market → gray marketing might occur
8
Q
Penetration Pricing Strategy
A
- Opposite of Skimming, initial prices are set very low to get the largest international market share.
- Best for: little product differentiation where demand is price-elastic and when the product is suitable for a mass market → economies of scale
- Example: Android Manufactures, as opposed to Apple
9
Q
Penetration pricing ADVANTAGES
A
- Favourable strategy when entering foreign market with a lot of local competition
- Also favourable in cases when entering market with lower income levels
- Gaining a quick market share
- Create a hype around the brand and brand awareness
10
Q
Penetration pricing DISADVANTAGES
A
- Increase sales through lowering prices only works if the main competitors are not doing the same
- Too low prices can affect customer perception of the credibility
11
Q
Bundle Pricing Strategy
A
- Pricing strategy in which the seller combines several products or services and then sells them as a “unit” at a single price instead of charging separate prices.
- Best for: Menus at restaurants, retail industry,…. and services, too, not just products.
- Example: Burger King and its King Meal: “Buy meal deal, save $3”
12
Q
Bundle pricing ADVANTAGES
A
- Able to sell the lesser known or unpopular products with the popular ones
- Some consumers will be spending more than they initially wanted (if they like the offer)
- Lower marketing costs (2 products for 1 effort)
13
Q
Bundle pricing DISADVANTAGES
A
- Chance that some consumers won’t buy something if it can be bought separately
- “Cannibalization” of some products that can be bought outside of the bundle. (Ex: “printer+laptop” sold together and separately.
14
Q
Premium Pricing Strategy
A
- Consists on charging higher prices (than the market average) for some products/services to strengthen perceived quality and establish a luxury brand image.
- Best for: high quality products/services which shape the perception and reputation of the brands as a premium choice, exclusivity or as a first mover advantage (new premium pricing in the category)
- Example: Premium Unleaded Petrol, +0,05€/litre more than regular
15
Q
Premium Pricing Strategy ADVANTAGES
A
- Increases profit margin (Higher price-per-unit→higher profit-per-unit sold)
- Improves brand value of a company
- Ability to raise barriers to entry
