Global Pricing Strategies Flashcards
What are all the factors that go into Global Pricing Strategies?
Global Pricing Strategies constructed from both Analysis and Decision Making
Analysis is comprised of internal company factors (taxes, profitability, tariffs, production costs, channel costs, transportcosts), market factors (income level, buyer power, competition) and environmental factors (foreign exchange rate, inflation rate, price controls, dumping regulations).
Decision making is comprised of market-by-market pricing, uniform pricing and managerial issues (transfer pricing, foreign currencies, parallel imports/gray markets, export price escalation, global pricing)
What is the global marketing pricing dilemma?
Pricing standardization vs. pricing adaptation
What are some advantages of price standardization?
Simple planning and budgeting, develop a global brand image, serve global customers with one price, prevent gray trade
ex. Hublot
Describe the three profit and cost types (fixed, variable and marginal)
fixed costs - do not change over a given range of output
variable costs - vary directly with output
marginal profit - amount in excess of variable costs. The profit earned by a firm or individual when one additional unit is produced and sold
Discuss three costs: Transport costs, local production costs and channel costs
Transport costs: variable among different methods, can be sensitive to world oil pricing
Local production: operational costs including raw materials, wages, energy, financing differ from country to country
Channel costs: different channel lengths, distribution margin, and logistics account for differing costs across markets
Discuss two profit and cost factors: tariffs and taxes
Tariffs: still significant in certain markets despite WTO efforts, price escalation effects, reclassification may avoid or lessen costs ex. Land Rover
Taxes:
sales tax (collected by retailers when final sale is reached)
Value-added tax - collected at each stage in supply chain
Sin taxes - collected on legal but discouraged products (cigarettes and alcoholic beverages)
What are the market factors that affect pricing?
Income level
- GNP (gross national product per capita) measures value of goods produced by citizens domestically and abroad
- GDP (gross domestic product per capita) measures the value of goods produced within country borders
- disposable income (money left after paying taxes)
Culture
- 8 with good luck, 4 death in china and taiwan
- marketers avoid pricing ending with 4 and prefer ending with 8
Competition
- intensity and power of competition
- sole supplier = great flexbility
- large number of competitors = encouragement of price wars
- Prices can be manipulated by cartels or other agreements among local competitors
Cartels an association of manufacturers or suppliers with purpose of maintaining prices at a high level and restricting competition
What are the environmental factors that effect pricing in a global market?
Exchange rate fluctuations when currency weakens, firm’s exports are more attractive. When currency strengthens, the firm’s exports are less attractive.
Inflation rates - high inflation countries - companies may price in a stable currency - and translate prices locally daily.
Price controls government restrictions on prices
Dumping regulations when manufacturers export a product to another country @ price lower than in home market/cost of production. Aims to increase market share in foreign market to drive out competition.
Explain the three ways in which companies decide who pays for exporting costs?
CIF (cost, insurance, freight) - seller pays for insurance and transportation to foreign port of debarkation.
CFR (Cost and freight) - seller pays for transport
FOB (Free on Board) - seller only pays to deliver goods to the port of export.
What is transfer pricing?
The price paid by importing or buying unit of a firm to the exporting unit of the same firm - frequently differs from market prices
What is transaction risk?
The risk that a change in exchange rates may occur between the invoicing date and the settlement date
What are the two foreign exchange price quotations?
Spot price - number of dollars to be paid for a particular foreign currency purchased or sold today.
Forward price - number of dollars to be paid in a foreign currency bought or sold 30, 90 or 180 days from today
What are parallel imports?
When cross-market prices are high, individual buyers or independent entrepreneurs buy products in low-price countries to re-export into high-price countries. Creates “grey market”
Why do grey markets cause problems?
They:
1. hurt relationships with authorized dealers
2. Undermine the ability to charge different price in different markets to maximize global profits
