Global Pricing Decisions Flashcards
International Pricing Framework -
Internal: Firm-Level Factors (Hollensen, 2011)
- Corporate and marketing objectives
- Competitive strategy
- Firm positioning
- Product development
- Production locations
- Market entry modes
International Pricing Framework -
Internal: Product Factors (Hollensen, 2011)
- Stage in PLC (Product Life Cycle)
- Place in product line
- Most important product features: quality, service, etc.
- Product positioning (USP)
- Product cost structure (manufacturing, experience, effects, etc.)
International Pricing Framework -
External: Environmental Factors (Hollensen, 2011)
- Government influences and constraints: import controls, taxes, price controls
- Inflation
- Currency fluctuations
- Business cycle stage
International Pricing Framework -
External: Market Factors (Hollensen, 2011)
- Customers’ perceptions (needs, tastes)
- Customers’ ability to pay
- Nature of competition
- Competitors’ objectives, strategies, and relative strengths/weaknesses
- Grey market appeal
International Pricing Framework -
Internal and External Leads to… Pricing Strategies (Hollensen, 2011)
- Price Level (first time pricing)
- Price changes over PLC (Product Life Cycle)
- Pricing across countries (standardization versus differentiation)
International Pricing Framework -
Pricing Strategies: Terms of Business (Hollensen, 2011)
- Terms of Sale
- Terms of Payment
International Pricing Framework - Pricing Strategy (and Other Marketing Mix P's elements) Leads to... Firm Performance (Hollensen, 2011)
- Sales
- Shares
- Contribution
- Margins
- profit
- Image
Price Escalation
- A price-related phenomenon caused by the summation of all cost factors in the distribution channel including ex-works price, shipping costs, tariffs, and distributor mark-up
- The longer the distribution channel, the higher the final price in the foreign market.
Price Escalation: Examples
- Transport
- Shipping
- Insurance
- Storage
- Tax/Duties
- Advertising
- Product Modifications
- Agents/Distributors Costs
Market Pricing
- A price strategy involving charging a final price based on competitive prices
Market Pricing: Factors influencing Customer Sensitivity
- More distinctive product
- Greater perceived quality of products
- Consumers less aware of substitutes in the market
- Difficulty in making comparisons
- Proportion price represents of total expenditure of the customer
- Perceived benefit for customer increases
- Product is used in association with a product bought previously, such that components and replacements are highly priced
- Costs are shared with other parties
- Product or service cannot be stored
The adoption rate of a new technology/innovative product in their five segmented groups (FIND SOURCE)
- Innovators: The first group to adopt a new product. Represents about 3 percent of a market.
- Early Adopters: The second group to adopt a new product. About 13 percent of a market.
- Early Majority: The third group to adopt a new product. About 34 percent of a market.
- Late Majority: The fourth group to adopt a new product. About 34 percent of a market.
- Laggards: The final group to adopt a new product. About 16 percent of a market.
Pricing Strategies -
Price Skimming
- A pricing strategy which involves charging a high price at the top end of the market with the objective of achieving the highest possible contribution in a short time
Pricing Strategies -
Price Skimming: Issues
- Having a small market share makes the firm vulnerable to aggressive local competition
- Maintenance of a high-quality product requires a lot of resources
- If product is sold more cheaply at home or in another country grey marketing is likely
Pricing Strategies -
Penetration Pricing
- A penetration pricing policy is used to stimulate market growth and capture market shares by deliberately offering products at low prices.
- This approach requires mass markets, price-sensitive customers and reduction in unit costs through economies of scale and experience curve effects.
Pricing Strategies -
Penetration Pricing - Motives
- Intensive local competition
- Lower income levels of locals
- View of exporting as marginal activity
Pricing Strategies -
Experience curve pricing
- Price changes are based on the idea that total unit costs of a product in real terms can be reduced by a certain percentage with each doubling of cumulative production
- Combination of the experience curve (lowering costs per unit) with accumulated production of the product with typical market price development within an industry.
Pricing Strategies -
Bundle pricing
- A pricing strategy based on grouping products and services in a system-solution product in order to overcome possible customer price concerns
- Bundling product and services together in a system-solution product. If the customer thinks that the entry price is a key barrier, service contracts can be priced higher, which allows for lower entry product for pricing - the practice in many software businesses.
Basic approaches to Pricing across countries
There are two essential opposing forces:
- first, to achieve similar positioning in different markets by adopting largely standardized pricing (standardization)
- second, to maximize profitability by adapting pricing to different market conditions. In determining to what extent prices should be standardized across borders two basic approaches appear. (differentiation)
Structural Factors of Standardized Pricing vs. Differentiated Pricing:
Price Differentiation (Diller and Bukhari, 1994)
Differences in:
- Average industry prices
- Price segments
- Methods and importance of special offers
- Importance of own brands
- Strength of local competitors
- Retailer power
- Terms and conditions
- Consumer preferences
- Price interest and awareness
Structural Factors of Standardized Pricing vs. Differentiated Pricing:
Price Standardization (Diller and Bukhari, 1994)
- Internationalization of competition
- Homogenization of competitive structures
- International activities of large retail organizations
- Increased danger of cross-border arbitrage
Structural Factors of Standardized Pricing vs. Differentiated Pricing:
Results (Diller and Bukhari, 1994)
- Consumer prices
- Retail prices
- Price positioning
- Terms and conditions
- Product line pricing
- Special offers
A taxonomy of international pricing practices:
1: Local Price Follower
Industry Globalism: Multi local Market
Preparedness for internationalization: Low
A taxonomy of international pricing practices:
2: Global Price Follower
Industry Globalism: Global Markets
Preparedness for internationalization: Low
A taxonomy of international pricing practices:
3: Multi Local Price Setter
Industry Globalism: Multi local Market
Preparedness for internationalization: High
A taxonomy of international pricing practices:
4: Global Price Leader
Industry Globalism: Global Markets
Preparedness for internationalization: High
Pricing Strategies -
Global Pricing Contract
- When a customer requires one global price per product from the supplier for all its foreign SBUs and subsidiaries, a global pricing contract has been requested.
Parallel Importing
- Occur when a product is sold more cheaply in one market than another, giving a third party the opportunity to trade between a cheaper market and more expensive market. Solutions include: - Erode differentials - Change the product - Change dealerships - Buy back - Warranties or Guarantees
Pricing Strategies -
Marginal Cost Pricing (Dumping)
- Selling price covers the variable costs
- Fixed costs covered by sales in other markets
- The pricing of goods in an overseas market cheaper than in the home market.
Conditions:
- Little speedy intervention
- Output represents a small proportion
- Resource use have no more profitable use
- No impact on principal markets
Pricing Strategies -
Transfer Pricing
- A term used to describe the prices charged for intracompany movement of goods and services
- Transfer pricing is the practice of setting up prices for trading valuables between two entities across different tax jurisdictions.
- The valuables can be tangibles, intangibles, services and financial transactions and the entities can be company divisions and departments, or parent companies and its subsidiaries.
Pricing Strategies -
Transfer Pricing: The Approaches
- Transfer at cost
- Transfer at arm’s length
- Transfer at cost plus
