MKT300

International Marketing
-Global pricing decisions-
 -Learning objectives-

0 Pricing strategies and objectives in global markets.

0 Environmental influencers that impact prices.
0 Apply ethnocentric/polycentric/geocentric framework
to pricing decisions.
0 Tactics to combat gray market goods.
0 Assess the impact of dumping on prices.
0 Types of price fixing.
0 Explain the concept of transfer pricing.
 -basic pricing concepts-
0 Law of One Price
0 All customers in the market get the best product for the best
price
0 Global markets
0 Diamonds
0 Crude oil
0 Commercial aircraft – ceteris-paribus, costs of a flight is the same worldwide
0 Integrated circuits
0 National markets
0 Costs (transaction, search for information…)
0 Competition – intensity of rivalry among industry players…
0 Regulation
 -basic pricing concepts-

0 The Global Manager must develop systems and policies

that address
0 Price Floor: minimum price
0 Price Ceiling: maximum price
0 Optimum Prices: function of demand
0 Must be consistent with global opportunities and
constraints e.g. global competition, regulation,
consumer preferences
0 Be aware of price transparency created by Euro zone,
Internet…
 -global pricing objectives and
strategies-
0 Managers must determine the objectives for their
pricing May differ from market to
0 Unit Sales market, due to…
- product life cycle stage
0 Market Share
- Country specific
0 Return on investment competitive environment
0 They must then develop strategies to achieve those
objectives May differ from market to
0 Penetration Pricing market…positioned as…
- mass market product in one
0 Market Skimming and as premium, niche market
in another…
-product lifecycle stages-
 -market skimming and
financial objectives-
0 Market Skimming
0 Charging a premium price
0 May occur at the introduction stage of product life
cycle
0 Luxury goods marketers use price to differentiate
products
0LVMH, Mercedes-Benz
 -market skimming and
financial objectives-
0 Examples of Market Skimming
0 When Sony introduced the first consumer VCRs in
the 1970s, the retail price exceeded $1,000.
0 When compact disc players were launched in the
early 1980s retail prices were $1000 - dropped to
below $500 within a few years.
0 In 1998, when HDTV sets went on sale in the United
States prices started at about $7,000. In 2005, Sony
introduced a 40-inch HDTV for $3,500; by the end of
2006, comparable sets were selling for about $2,000.
Today, comparable sets cost less than $500.
 -market skimming and
financial objectives-
0 Should Global firms drastically reduce price over the
life of a product?

0 By holding price on its autos, Mercedes-Benz opened

the door for Toyota to launch its Lexus line and
undercut Mercedes.
0 Apple has been successful while not discounting on
its products
 -penetration pricing and
non-financial objectives-
0 Penetration Pricing
0 Charging a low price in order to establish a market
quickly
0 Appropriate to saturate market prior to imitation by
competitors
0 Packaged food product makers, with products that
do not merit patents, may use this strategy to get
market saturation before competitors copy the
product
 -Other pricing strategies-

0 Companion products or ‘razor and blades’ pricing

0 Products whose sale is dependent upon the sale of a
primary product
0 Video games are dependent upon the sale of the game
console
0 “If you make money on the blades, you can give away the
razors.”
0 Cellular service providers subsidize the phone and make
money on calling plans (contract)
0 E.g. In the US an iPhone sells for $199. However, in India, where
customers do not want to be locked into long-term contracts, the
iPhone sells for $600
 -Other pricing strategies-

0 Target costing
0 Used by Japanese companies to control costs, save on
production expense, & create competitively priced global
products
0 Also called Design to Cost or ‘Reverse engineering’
 -target costing process-

0 Determine the segment(s) to be targeted, as well as the

prices that customers in the segment will be willing to
pay.
0 Compute overall target costs with the aim of ensuring
the company’s future profitability.
0 Allocate the target costs to the product’s various
functions.
0 Calculate the gap between the target cost and the
estimated actual production cost.
0 Obey the cardinal rule: If the design team can’t meet
the targets, the product should not be launched.
- Good day -
 -export price escalation-

0 Export price escalation is the increase in the final

selling price of goods traded across borders.
-export price escalation-

$1998.00
 -pricing factors for goods that
cross borders-
0 Does the price reflect the product’s quality?
0 Is the price competitive given local market conditions?
0 Should the firm pursue market penetration, market skimming, or
some other pricing objective?
0 What type of discount (trade, cash, quantity) and allowance
(advertising, trade-off) should the firm offer its international
customers?
0 Should prices differ with market segment?
0 What pricing options are available if the firm’s costs increase or
decrease? Is demand in the international market elastic or
inelastic?
0 Are the firm’s prices likely to be viewed by the host-country
government as reasonable or exploitative?
0 Do the foreign country’s dumping laws pose a problem?
 -terms of the sale-
0 Incoterms
0 Ex-works – seller places goods at the disposal of the buyer at the time
specified in the contract; buyer takes delivery at the premises of the seller and
bears all risks and expenses from that point on.
0 Delivery duty paid – seller agrees to deliver the goods to the buyer at the
place he or she names in the country of import with all costs, including duties,
paid
0 FCA (free carrier) sale occurs when goods are delivered to the carrier
0 FAS (free alongside ship) named port of destination – seller places goods
alongside the vessel or other mode of transport and pays all charges up to that
point
0 FOB (free on board) – seller’s responsibility does not end until goods have
actually been placed aboard ship
0 CIF (cost, insurance, freight) named port of destination – risk of loss or
damage of goods is transferred to buyer once goods have passed the ship’s rail
0 CFR (cost and freight) – seller is not responsible at any point outside of
factory
 -environmental influencers
that impact on prices-
0 Inflation
0 Defined as a persistent upward change in price levels
0Can be caused by an increase in the money supply
0Can be caused by currency devaluation
0 Essential requirement for pricing is the maintenance
of operating margins (contribution margins)
0 Price – Variable costs of production (wages, materials...)
0 Profit made on a dollar of sale after paying for
production VCs
 -environmental influencers
that impact on prices-
0 Low Inflation
0 Should make it possible to raise prices but consider the
global competitive environment
0 U.S. inflation rate in the 1990s was low and strong demand
had factories at capacity
0 However, mid-1990s Europe had high unemployment, Asia
was in recession
0 By the end of the decade, globalization, the Internet, low-
cost products from China, and cost-conscious consumers
became other constraining factors
0 Its important to constantly scan the external environment
 -environmental influencers
that impact on prices-
0 Government control, Subsidies, and Regulations

0 Policies and regulations 0 Foreign governments may:

that affect pricing 0 require funds to be
decisions are: noninterest-bearing
0 Dumping legislation accounts for a long time
0 Resale price 0 restrict profits taken out
maintenance legislation of the country and limit
0 Price ceilings funds paid for imported
0 General reviews of price material
levels 0 Restrict price competition
 -environmental influencers
that impact on prices-
0 Competitive behaviour
0 If competitors do not adjust their prices in response
to rising costs it is difficult to adjust your pricing to
maintain operating margins
0 If competitors are manufacturing or sourcing in a
lower-cost country, it may be necessary to cut prices
to stay competitive
 -environmental influencers
that impact on prices-
0 Using sourcing as a strategic pricing tool
0 Marketers of domestically manufactured finished
products may move to offshore sourcing of certain
components to keep costs down and prices
competitive
0 China is “the world’s workshop”
0 Rationalize the distribution system—Toys ‘R’ Us
bypasses layers of intermediaries in Japan to operate
U.S. style warehouse stores
- Good day -
 -global pricing: three policy
alternatives-
0 Extension or Ethnocentric
0 Adaptation or Polycentric
0 Geocentric
 -global pricing: three policy
alternatives-
0 Extension or Ethnocentric
0 Per-unit price of an item is the same no matter
where in the world the buyer is located
0 Importer must absorb freight and import duties
0 Fails to respond to each national market

0 The disadvantage
0 It does not respond to the competitive and market
conditions of each national market and,
0 Does not maximize the company’s profits in each
national market or globally
 -global pricing: three policy
alternatives-
0 Adaptation or Polycentric
0 Permits affiliate managers or independent distributors
to establish price as they feel is most desirable in their
circumstances
0 Sensitive to market conditions but creates potential
for gray marketing

0 Gray markets: when disparities in prices between different

country markets exceed the transportation and duty costs
separating the markets
0 Discounted drugs intended for AIDS patients in Africa have been
smuggled into the European Union and sold at a huge profit.
 -global pricing: three policy
alternatives-
0 Geocentric
0 Best suited for a global competitive strategy
0 Recognizes that several factors are relevant to
pricing decision
0 Local costs
0 Income levels
0 Competition
0 Local marketing strategy
0 Prices support global strategy objectives rather than the
objective of maximizing performance in a single
country.
 -Dumping-
0 Sale of an imported product at a price lower than that
normally charged in a domestic market or country of
origin
0 WTO allows Governments to act against dumping when
there is genuine injury to be competing domestic
industry
0 To prove, both price discrimination and injury must be
shown
 -price fixing-
0 Representatives of two or more companies secretly set
similar prices for their products
0 Illegal act because it is anticompetitive
0 Horizontal price fixing occurs when competitors
within an industry that make and market the same
product conspire to keep prices high
0 Vertical price fixing occurs when a manufacturer
conspires with wholesalers/retailers to ensure certain
retail prices are maintained
 -transfer pricing-

0 Pricing of goods, services, and intangible property

bought and sold by operating units or divisions of a
company doing business with an affiliate in another
jurisdiction
0 Intra-corporate exchanges
0 Cost-based transfer pricing
0 Market-based transfer pricing
0 Negotiated transfer pricing

0 Affiliate = branch/representative/dealer/franchisee…
- Good day -