I - Cross-cultural Price politics

Question 1

Significance of price politics

Leverage effect of the prices

Answer 1

With a 1% decrease/increase (ceteris paribus) of …
… price, profit increases by 11.2%
… variable costs, profit increases by 7.8%
… sales volume, profit increases by 3.3%
… fixed costs, profit increases by 2.3%

Question 2

Comparison with other politics

Advantages and disadvantages of price politics compares to product-, distribution, and communication politics

Answer 2

Pro:

• lower implementation costs
• faster implementation speed
• faster influence on consumption decisions
• higher influence on profit

Contra:

• possibility to withdraw the decision is more difficult
• it has a lower potential to increase customer loyalty
• it has a higher likelihood of imitation by competitors

Question 3

Setting prices

The “Magic triangle” of the scope of price settings

Answer 3

Price setting is dependent from:

• costs
• competitors
• demand

International:
+ changes in currency exchange rates
+ state interventions (e.g. taxes and tariffs)
+ …

Question 4

Setting prices

Specifics of setting prices in an international context (how it is done in practice)

Answer 4

• international pricing is mainly based on cost-plus pricing
• > assumption that more is secure
• > managers tend to set higher prices
• pricing for exported goods often on basis of partial costs
• > managers tend to set lower prices, the domestic market has to generate the find costs

Question 5

Odd-pricing

Universal effect of “Odd-pricing”?

Intuitive assumption

Answer 5

Odd-pricing more relevant in high-context cultures

Question 6

Odd-pricing

What is a “drop-off tendency”?

Answer 6

When the price of a product rises, decreases the share of consumers.

Question 7

Odd-pricing

Universal effect of “odd-pricing”?

Empirical finding

Answer 7

• odd-pricing is less wide-spread in high context cultures
• are consumers in high-context cultures less affected by the illusion of low prices by odd pricing?

Western companies should not simply adopt their strategies to other country markets without checking how it works

Question 8

Behavioral approach

S-O-R-Modell

Answer 8

Stimulus:
- price, price level, price optic, discount, coupon, etc.

Organism:
- price perception, price knowledge, price consciousness, willingness-to-pay, price preferences, etc.

Response:
- sales, revenue, profit, etc.

• > Culture influences what’s happening in the organism
• > standardization vs. adaptation

Question 9

Cross-Cultural Differences in Price-Quality-Irradiation

Price-Quality-Relationship (Jo/Sarigollu)

Research Question and Treatment

Answer 9

Research Question:
- Does culture influence how consumers evaluate a product at a given price?

Treatment:
- A travel agency offered the same journey, but varied the price

Question 10

Cross-Cultural Differences in Price-Quality-Irradiation

Price-Quality-Relationship (Jo/Sarigollu)

Empirical finding

Individualistic cultures

Answer 10

Individualistic cultures (Australia):

Stimulus:
- price

Organism:
- weak-price-quality irradiation

Response:
- cheap offering (lower than catalogue price)

Question 11

Cross-Cultural Differences in Price-Quality-Irradiation

Price-Quality-Relationship (Jo/Sarigollu)

Empirical finding

Collectivistic cultures

Answer 11

Collectivistic cultures (Japan):

Stimulus:
- price

Organism:
- strong price-quality irradiation

Response:
- expensive offering (higher than catalogue price)

Question 12

Cross-cultural Differences in price fairness

Cultural Influence of fairness perceptions (Bolton et al.)

Research Question and Treatment

Answer 12

Does culture influence how consumers evaluate the fairness of prices?

Treatment:
Variation in the price to be paid for one individual compared to another (China vs. US)

Question 13

Cross-cultural Differences in price fairness

Cultural Influence of fairness perceptions (Bolton et al.)

Model (Treatment)

Answer 13

Stimulus:
- price the consumer has to pay vs. the price other consumers have to pay

Organism:

• perceived fairness
• activated processes: shame/anger

Influence of Stimulus -> Organism Relationship:

• indivudalism/collectivism, self construal
• relation to in-group vs. outgroup

Response:
- willingness to buy

Question 14

Cross-cultural Differences in price fairness

Cultural Influence of fairness perceptions (Bolton et al.)

Empirical finding

Answer 14

Both US and Chinese consumers, perceive higher prices as unfair. However, there are differences:

China:
Prices are perceived especially unfair, if …
… own price higher than for a friend (vs. stranger)
… there is already a relationship to the company (vs. first purchase)

Question 15

Price perception

Odd-pricing vs. lucky numbers (Westjohn)

Basic assumptions

Answer 15

• adaptation of the pricing strategy to local circumstances can be advantageous (i.e. if consumers are ethnocentric)

Superstition may be relevant:

• Western countries: No influences of superstition on pricing (-> ending 0, 5, 9)
• China: Price endings with “lucky numbers” (especially 8), rarely “unlucky numbers” (4)

Question 16

Price perception

Odd-pricing vs. lucky numbers (Westjohn)

Do marketers use price endings with 4 and 8 less resp. more often in Singapore?

Answer 16

• Lucky pricing is used more frequently if prices are high

- Lucky pricing is used more frequently by eastern companies than western companies

Question 17

Price perception

Odd-pricing vs. lucky numbers (Westjohn)

May Western companies increase the impression of being local by using lucky pricing?

Answer 17

Experiment:
Eastern pricing (lucky 8 ending) vs. Western pricing (9 ending)

• direct effect of lucky pricing on the perception of being local
• indirect effect on the attitude towards the brand and the price attractiveness
• effects are less pronounced if consumers have a cosmopolitan mindset

Question 18

Bargaining as perfect price differentiation

Bargaining depends on …

Answer 18

… development status of a country
-> low vs. high

… value of the object
-> e.g. low vs. high involvement products

… buying environment
-> structured vs. unstructured

… culture

• > Collectivism: +
• > uncertainty avoidance: -

Question 19

Basics of Adaptation

Price differentiation

Goal and preconditions

Answer 19

Goal:
- Absorption of consumer surplus

Precondition:

• heterogeneous willingness to pay
• benefit of differentiation > costs of differentiation

Question 20

Types of price differentiation

Criteria for price differentiation

Answer 20

Consumer Segments
- e.g. bank giro account for students at no costs

Time
- e.g. train: budget ticket, hotel: early bird rebate

Volume
- e.g. quantity/frequency discount

Type of business relationship
- e.g. discount for long-term customers

Price bundling
- e.g. Microsoft office package, fast food menus

Geography
- e.g. Price differentiation across countries

Question 21

Standardization vs. Adaptation of prices

Factors influencing the S/A decision

Price standardization

Answer 21

• Standardization of products and brands
• global structure of organizations
• lower transportation costs
• reduction of trade barriers (e.g. EU, NAFTA)
• intensive world wide communication
• active sellers (grey markets)

Question 22

Standardization vs. Adaptation of prices

Factors influencing the S/A decision

Price Adaptation

Answer 22

• Inflation rate/exchange rate
• culture specific consumer preferences
• different buying power
• local competitors
• legal conditions (e.g. tariffs, taxes, anti- dumping regulation)
• costs (e.g. wages, raw materials)
• infrastructure for distribution

Question 23

tandardization vs. Adaptation of prices

Factors influencing the S/A decision

Conclusion

Answer 23

Standardizing pricing is more difficult than standardizing other Ps

• > many influencing factors
• > market power of traditional local retailers reduces the pricing scope of retailers

Question 24

tandardization vs. Adaptation of prices

Advantages and Disadvantages of international Price Adaption

Answer 24

Benefits:
- absorption of different willingness to pay (consumer surplus) in different countries

Risks (if the consumer realized the adaption):

• reactance and exit of the customers
• customers decrease their reference price
• grey markets, arbitrage

Question 25

Necessity of Price differentiation

Rule of thumb

Answer 25

in general for S/A:
As much standardization as possible, as much adaptation as necessary

However, for pricing:
As much adaption as possible, as much standardization as necessary

Question 26

Strategies of international pricing

Ethnocentric -> Standardization

Principle:
Advantage:
Disadvantage:

Answer 26

Principle:
- same price in all markets

Advantage:

• simle to do
• costs of importing and tariffs are covered by the importing company

Disadvantage:
- difficult to adapt prices to changing circumstances

Question 27

Strategies of international pricing

Polycentric -> Adaptation

Principle:
Advantage:
Disadvantage:

Answer 27

Principle:
- subsidiaries and retailers set prices for local markets

Advantage:
- adaptation to local markets is possible

Disadvantage:

• arbitrage effects are possible
• no control over pricing strategy (multinational companies have no control because prices adapt)

Question 28

Strategies of international pricing

Geocentric

Principle:
Advantage:
Disadvantage:

Answer 28

Principle:
- centralist coordination of prices while considering local market conditions

Advantage:

• keeping control over basic strategic orientation
• price is a central component of the marketing mix

Disadvantage:
- need to constantly monitor all markets