7 International Pricing Decisions Flashcards
What are the main factors that affect Pricing Strategies?
- Company (internal)
- Consumer (external)
- Environmental (external)
- Technology
- Distribution
- Competitive
What are the Company factors?
- Nature of product/ industry (raw materials, VCs, after-sale servicing, add-ons)
- Experience (which stage of product life cycle)
- Location of production facilities (exchange rate)
What are the Consumer factors?
- Price element (upfront/finance?, etc)
2. Buying Power (what they can afford, cash/credit?)
What are the Environmental factors?
- Culture (nego? pmt terms)
- Location + environment (operating costs)
- Gov Regulation
- International Trade Relations
What are the Technological Factors?
Effects of internet
- reduces intermediaries - improves customisation - increased competition - increased buyer knowledge
What are the Distribution Factors?
Effect of intermediaries
- can lessen firm control - adds additional costs and margins - can extend export time
What are the Competitive Factors?
- Direct rivals
- relative power/market share
- industry structure/positioning
- switching costs
- Indirect rivals
- substitute products
- counterfeit offerings
What are the factors influencing Price Escalation in international markets?
- Production facilities - fluctuations in exchange rates
- Consumer Demand
- Products or industry influences
- Operational costs of exporting
- Culture influences
- Gov reg/taxes
How to Deal with price Escalation?
- Maintaining current price if rise is short term
- Reducing price in relation to competitors
- Raising the price and use quality differentiation
- Reducing the price and enhance perceived value to deter new entrants
- Reduce the number of intermediaries
- Eliminate costly features
- Ship and assemble in a cheaper location
- Modify the product for tariff reasons
- Reducing the valuation to avoid duties
- Move manufacturing to lower cost country
What is the luxury pricing strategy from top to bottom?
- Not for sale (inaccessible)
- Exclusive (intermediate)
- Mass produced profit making (affordable)
Theodosiou & Katsikeas (2001)
Strongest predictor is the similarity between countries based on the following factors:
- Economic Environment – purchasing power, labour costs..
- Legal Environment – retail price maintenance, standards…
- Distribution Infrastructure – number/type intermediaries…
- Customer Characteristics & Behaviour – price sensitivity…
- Stage of PLC – introduction, growth, maturity, decline…
EU Price Harmonisation
Despite same currency, different prices due to:
- Different tax rates (especially alcohol/cigarettes)
- Product status
- Market structure
Define Pricing Corridor.
The price range within a region ideally set to maximise profits and reduce parallel imports.
Strategies to cope when AUD is weak?
- Stress price benefits
- Expand product line and features
- Shift manufacturing and sourcing to Australia
- Exploit opportunities in all markets
Strategies to cope when AUD is strong?
- Undertake non-price competition by improving quality, delivery and after-sales services
- Improve productivity and engage in cost reduction
- Shift sourcing and manufacturing offshore
Define pass-through rate.
It is not always the case that variations in exchange rates will be passed on to the importer by the exporter in the form of higher or lower prices.
What factors influences the Pass-through Rate (to consumers)?
- Size of the economy - greater PTR for smaller countries
- Level of industry concentration - greater concentration = greater PTR
- Whether appreciation or depreciation - greater likelihood for PTR for a>d
- Proportion of foreign competitors - increase export competitors - increase PTR
- Type of non-tariff barriers - import quotas discourage PTR
- COO exporters - more strategic pricing = less PTR
Define Currency Quotation.
A currency pair is the quotation of the relative value of a currency unit against the unit of another currency in the foreign exchange market.
Characteristics of a Currency Quotation.
- Both sellers and buyers prefer their own
- The other party bears the risk
- Depends on balance of power, relationship length, transaction type
- Can quote in a common currency/third currency
Define Transfer pricing.
prices charged for sales transactions among related entities of the same organisation in different countries
What are the determinants of Transfer Pricing?
- Tax regimes
- Local Market Conditions
- Market imperfections
- Joint Venture partner
- Morale of local country managers
