Chapter 11 - Pricing Decisions Flashcards
Review basic pricing concepts that underlie a successful global marketing pricing strategy. (What types do exist and what do managers need to consider?)
Law of one price
- all customers in the market get the best product for the best price
Global Markets
- Diamonds
- Crude oil
- commercial aircraft
- integrated circuits
National markets:
- costs
- competition
- regulation
Managers must develop systems and policies that adress price floor (minimum price), price ceiling (Maximum price) and optimum prices (function of demand)
- must be considered with global opportunities and constraints (Einschränkungen)
- be aware of price transparency created by Euro zone and internet
Global Pricing Objectives and Strategies:
Pricing objectives to be determined:
- unit sales
- market share
- ROI
Strategies to be developed to achieve those objectives:
- penetration pricing
- market skimming
List some of the environmental influencers that impact prices - Inflationary Environment
Defined as a peritent upward change in price levels
- Can be caused by an increase in the money supply
– Can be caused by currency devaluation
Essential requirement for pricing is the maintenance of operating margins
List some of the environmental influencers that impact prices - Low Inflation Environment
- Should make it possible to raise prices but consider the global competitive environment
- U.S. inflation rate in the 1990s was low and strong demand had factories at capacity
- However, mid‐1990s Europe had high unemployment, Asia was in recession
- By the end of the decade, globalization, the Internet, low‐cost products from China, and costconscious consumers became other constraining factors
Apply ethnocentric/polycentric/geocentric framework to decisions regarding price. (three policy alternatives of global pricing)
Extension/Ethnocentric Pricing:
- per-unit price of an item is the same no matter where in the world the buyer is located
- importer must absorb freigth and import duties
- fails to respond to each national market
Adaption/Polycentric Pricing:
- Permits (erlaubt) affiliate managers or independent distributors to establish price as they feel is most desirable in their circumstances
- sensitiv to market conditions but creates potential gray marketing
Geocentric Pricing
- intermediate course of action
- recognises that several factors are relevant to pricing decision
(local costs, income levels, competition, local marketing strategy)
Explain some gray market goods and the issues with gray markets.
= trademarked products are exported from one country to another where they are sould by unauthorized persons or organisations
- occurs when product is in short supply, when producers use skimming strategies in some markets, and when goods are subject to substantial mark-ups
Gray Market Issues:
- Dilution of exclusivity (Verwässerung der Exklusivität)
- free riding (Trittbrettfahrerei)
- damage to channel relationships
- undermining segmented pricing schemes
- reputation and legal liability
Assess the impact of dumping on prices in global markets.
Dumping = Sale of an imported product at a price lower than that normally charged in a domestic market or country of origin
- occurs when imports sold in the US market are priced at either leels that represent less than the ost of production + an 8% profit marging or at levels below those prevailing (vorherschend) in the producing countries
- US law , the Byrd Amendment, provides for payment to companies harmed by dumping countries
- To prove, both price discrimination and injury must be shown
Compare and contrast the different types of price fixing.
Price fixing = Representatives of two or more companies secretly set similar prices for their products (illegal - Antitrust)
Horizontal price fixing:
- occurs when competitors within an industry that make and market the same product conspire to keep prices high
Vertical price fixing:
- occurs when a manufacturer conspires with wholesalers/retailers to ensure certain retail prices are manifested
Explain the concept of transfer pricing. (interne Verrechnungspreise)
Pricing of goods, services and intangible property bought and sould by operation units or divisions of a company doing business with an affiliate in another jurisdiction
Intra-corporate exchanges:
- cost-based transfer pricing
- Market-based transfer pricing
- Negotiated transfer pricing
Define countertrade (Gegengeschäft) and explain the various forms it can take.
Countertrade occurs when payment is made in some form other than money
Options:
- Barter (Tausch)
- Counterpurchase or parallel trading (Gegenkauf oder Parallelhandel)
- Offset (Verrechnung)
- Compensation trading or buyback
- Switch trading
Explain the term market skimming and financial objectives
- charging a premium price
- may occur at the introduction stage of product life cycle
- luxury goods marketers use price to differentiate products (LVMH, Mercedes-Benz)
Explain the term penetration pricing & non-financial objectives
- Charging a low price in order to penetrate market quickly
- appropriate to saturate market prior to imitation by competitors
- packaged food product makers, with priduct that do no merit (verdienen) patents, may use this strategy to get market saturation before competitors copy the product
Explain companion products.
- Products whose sale is dependent upon the sale of primary product (Video games depend on buy of console)
- “If you can make money on the blades you can give away the razors”
- Cellular service providers subsidize the phone and make money on calling plans
What is target costing and how does the target-costing process look like?
= Zielkostenrechnung
- Use by Japanese companies to control costs, save on productions expense & create competitively prices global products
- also called “Design to Cost”
- Determine the segment(s) to be targeted, as well as the prices that customers in the segment will be willing to pay
- Compute (berechnen) overall target costs with the aim of ensuring the company’s future profitability
- ALlocate the target costs to the productss various functions. Calculate the gap between the target cost and the estimated actal production cost
- Obey the cardinal rule: If the design team can’t meet the targets, the product should not be launched.
Define Export price escalation
= is the increase in the final selling price of goods traded across borders
(Das was angestiegen ist am VK-Preis, durch den Export)
