Chapter 18 Pricing for International Markets
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Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora 18-1 Chapter 18 PRICING FOR INTERNATIONAL MARKETS
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International Marketing
Transcript of Chapter 18 Pricing for International Markets
Slide 1Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a
International Marketing 2e by Cateora
18-*
Chapter 18
PRICING FOR
INTERNATIONAL MARKETS
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Factors driving pricing decisions
How to control pricing in parallel imports or grey markets
Price escalation and how to minimise its effect
Countertrading and its place in international marketing practices
The mechanics of price quotations
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Global Perspective: Price War in the Video Game Console Market
Setting the right price for a product or service can be the key to success or failure.
An offering’s price must reflect the quality and value the consumer perceives in the product.
Problems affecting global pricing decisions include:
Increased competitive levels
Grey market activities
Exchange rate volatility (AUD) 2008-2012
Total January 2011 sales for gaming accessories, portable systems, and games for PCs and consoles fell to $1.16 billion from last year’s total of $1.22 billion. Nintendo found its sales down 31.5 per cent compared to the same period of time last year. That’s a drop from 465 800 Wii consoles sold in January 2010 to 319 000 sold in January 2011. The PlayStation 3 experienced a slight drop in sales between January 2010 and January 2011, only losing 3 per cent of its total between the two years.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Factors Driving International Pricing
Pricing decisions are influences by a complex set of interrelated factors both internal and external to the firm.
Key internal considerations include:
Location of production facilities
Government policies.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Effective strategy might depend on one of combination of objectives:
Maximising profits
Ensuring adequate cash flow
Maintaining or creating a certain image.
Nature of the product or industry
Technically advanced.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Location of production facilities
Response to exchange rage and cost input fluctuations
Distribution channels
October 2009: The Australian Competition and Consumer Commission (ACCC) called into question a fuel discount promotion undertaken by major Australian supermarket Coles.
According to the ACCC, Coles Express petrol stations proposed to offer discounts of 40 cents per litre to customers who purchased more than $300 at a Coles supermarket between 16 and 29 October
2009. Discounts of 25 cents per litre and 10 cents per litre were to apply to purchases of above $200 and $100 respectively. The ACCC questioned the promotion, claiming it did not strike the right balance between providing benefits to the consumer and promoting competition within the marketplace and Coles ultimately withdrew the promotion at the eleventh hour.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Pricing: Full-Cost versus Variable-Cost Pricing
Variable-cost pricing – the firm is concerned only with the marginal or incremental cost of producing goods to be sold in overseas markets
May be subject to Anti-dumping tariffs.
Full-cost pricing – companies insist that no unit of a similar product is different from any other unit in terms of cost and that each unit must bear its full share of the total fixed and variable cost.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Strategic Approaches to International Pricing: Skimming versus Penetration Pricing
Skimming – a company uses when the objective is to reach a segment of the market that is relatively price insensitive and thus willing to pay a premium price for the value received.
skimming the cream-Introductory stage
Penetration pricing policy – used to stimulate market and sales growth by deliberately offering products at low prices.
For instance, the Sony PlayStation 3 was initially sold at $599, but the price has gradually reduced to $299 (US).
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Taxes, tariffs and administrative costs
Tariff – fee charged when goods are brought into a country from another country.
Administrative costs include export and import licenses, other documents and the physical arrangements for getting the product from port of entry to the buyer’s location.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Inflation
In countries with rapid inflation or exchange variation, the selling price must be related to the cost of goods sold and the cost of replacing the items.
Deflation
In a deflationary market, it is essential for a company to keep prices low and raise brand value to win the trust of consumers.
Exchange rate fluctuations
No one is quite sure of the future value of currency.
Transactions are increasingly being written in terms of the vendor company’s national currency.
For instance, in 2011 the AUD reached $1.10 versus the USD
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Price Escalation (cont.)
Varying currency values
Changing values of a country’s currency relative to other currencies.
Cost-plus pricing generally used when value of home currency is weak.
Middleman and transportation costs
Underdeveloped marketing and distribution channel infrastructures.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Sample Causes and Effects of Price Escalation
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Lowering cost of goods
Using foreign trade zones to lessen price escalation
Exemption of duty from labour and overhead costs incurred in FTZ
Dumping
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Pricing Policy Parallel Imports
Occurs whenever price differences are greater than the cost of transportation between two markets.
Major problem for pharmaceutical companies.
Exclusive distribution.
Parallel imports develop when importers buy products from distributors in one country and sell them in another to distributors who are not part of the manufacturer’s regular distribution system.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
How Grey-Market Goods End Up in US Stores
1. A major US manufacturer agrees to sell its products, at a price competitive for an overseas market, to
‘Buyer X’ who promises to sell the products overseas.
2. The manufacturer ships the goods to Buyer X.
3. Buyer X has a local freight forwarder at the port take possession of the goods.
4. Instead of shipping the goods to their supposed destination, the freight forwarder (at the behest of Buyer X)
sends them to smaller distributors and discount outlets in the United States.
5. The freight forwarder sends a bogus bill of lading to the manufacturer, so the company believes the goods
have been sold overseas.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Leasing in International Markets
Opens the door to a large segment of nominally financed foreign firms that can be purchased on a lease option but might be unable to buy for cash.
Can ease the problems of selling new, experimental equipment because less risk is involved for the users.
Helps guarantee better maintenance and service on overseas equipment.
Helps to sell other companies in that country.
Revenue tends to be more stable over a period of time than direct sales would be.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Why purchasers impose countertrade:
To preserve hard currency
To gain access to new markets
To upgrade manufacturing capabilities
To force reinvestment of proceeds from weapons deals.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Types of countertrade
Product buyback agreement.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Problems of countertrading
Determining the value of and potential demand for the goods offered
Barter houses
Effective for exchange-poor countries.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Facilitating dividend repatriation when dividend repatriation is curtailed by government policy
Arrangements for pricing goods for intra-company transfer:
Sales at the local manufacturing cost plus a standard markup
Sales at the cost of the most efficient producer in the company plus a standard markup
Sales at negotiated prices
Arm’s-length sales using the same prices as quoted to independent customers.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Credit
Should define quantity and quality.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Administered Pricing
Administered pricing is an attempt to establish prices for an entire market.
Cartels
Exists when various companies producing similar products or services work together to control markets for the types of goods and services they produce
Example: OPEC, De Beers.
Restrict price changes
Act as a purchasing monopoly or selling monopoly.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Summary
Pricing is one of the most complicated decisions areas encountered by international marketers.
International marketers must take many factors into account, not only for each country, but often for each market within a country.
Market prices at the consumer level are much more difficult to control in international than in domestic marketing.
Countertrading is an important tool to include in pricing policy.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Summary (cont.)
Pricing in the international marketplace requires a combination of intimate knowledge of market costs and regulations, an awareness of possible countertrade deals, infinite patience for detail and a shrewd sense of market strategy.
18-*
Chapter 18
PRICING FOR
INTERNATIONAL MARKETS
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Factors driving pricing decisions
How to control pricing in parallel imports or grey markets
Price escalation and how to minimise its effect
Countertrading and its place in international marketing practices
The mechanics of price quotations
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Global Perspective: Price War in the Video Game Console Market
Setting the right price for a product or service can be the key to success or failure.
An offering’s price must reflect the quality and value the consumer perceives in the product.
Problems affecting global pricing decisions include:
Increased competitive levels
Grey market activities
Exchange rate volatility (AUD) 2008-2012
Total January 2011 sales for gaming accessories, portable systems, and games for PCs and consoles fell to $1.16 billion from last year’s total of $1.22 billion. Nintendo found its sales down 31.5 per cent compared to the same period of time last year. That’s a drop from 465 800 Wii consoles sold in January 2010 to 319 000 sold in January 2011. The PlayStation 3 experienced a slight drop in sales between January 2010 and January 2011, only losing 3 per cent of its total between the two years.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Factors Driving International Pricing
Pricing decisions are influences by a complex set of interrelated factors both internal and external to the firm.
Key internal considerations include:
Location of production facilities
Government policies.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Effective strategy might depend on one of combination of objectives:
Maximising profits
Ensuring adequate cash flow
Maintaining or creating a certain image.
Nature of the product or industry
Technically advanced.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Location of production facilities
Response to exchange rage and cost input fluctuations
Distribution channels
October 2009: The Australian Competition and Consumer Commission (ACCC) called into question a fuel discount promotion undertaken by major Australian supermarket Coles.
According to the ACCC, Coles Express petrol stations proposed to offer discounts of 40 cents per litre to customers who purchased more than $300 at a Coles supermarket between 16 and 29 October
2009. Discounts of 25 cents per litre and 10 cents per litre were to apply to purchases of above $200 and $100 respectively. The ACCC questioned the promotion, claiming it did not strike the right balance between providing benefits to the consumer and promoting competition within the marketplace and Coles ultimately withdrew the promotion at the eleventh hour.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Pricing: Full-Cost versus Variable-Cost Pricing
Variable-cost pricing – the firm is concerned only with the marginal or incremental cost of producing goods to be sold in overseas markets
May be subject to Anti-dumping tariffs.
Full-cost pricing – companies insist that no unit of a similar product is different from any other unit in terms of cost and that each unit must bear its full share of the total fixed and variable cost.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Strategic Approaches to International Pricing: Skimming versus Penetration Pricing
Skimming – a company uses when the objective is to reach a segment of the market that is relatively price insensitive and thus willing to pay a premium price for the value received.
skimming the cream-Introductory stage
Penetration pricing policy – used to stimulate market and sales growth by deliberately offering products at low prices.
For instance, the Sony PlayStation 3 was initially sold at $599, but the price has gradually reduced to $299 (US).
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Taxes, tariffs and administrative costs
Tariff – fee charged when goods are brought into a country from another country.
Administrative costs include export and import licenses, other documents and the physical arrangements for getting the product from port of entry to the buyer’s location.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Inflation
In countries with rapid inflation or exchange variation, the selling price must be related to the cost of goods sold and the cost of replacing the items.
Deflation
In a deflationary market, it is essential for a company to keep prices low and raise brand value to win the trust of consumers.
Exchange rate fluctuations
No one is quite sure of the future value of currency.
Transactions are increasingly being written in terms of the vendor company’s national currency.
For instance, in 2011 the AUD reached $1.10 versus the USD
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Price Escalation (cont.)
Varying currency values
Changing values of a country’s currency relative to other currencies.
Cost-plus pricing generally used when value of home currency is weak.
Middleman and transportation costs
Underdeveloped marketing and distribution channel infrastructures.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Sample Causes and Effects of Price Escalation
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Lowering cost of goods
Using foreign trade zones to lessen price escalation
Exemption of duty from labour and overhead costs incurred in FTZ
Dumping
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Pricing Policy Parallel Imports
Occurs whenever price differences are greater than the cost of transportation between two markets.
Major problem for pharmaceutical companies.
Exclusive distribution.
Parallel imports develop when importers buy products from distributors in one country and sell them in another to distributors who are not part of the manufacturer’s regular distribution system.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
How Grey-Market Goods End Up in US Stores
1. A major US manufacturer agrees to sell its products, at a price competitive for an overseas market, to
‘Buyer X’ who promises to sell the products overseas.
2. The manufacturer ships the goods to Buyer X.
3. Buyer X has a local freight forwarder at the port take possession of the goods.
4. Instead of shipping the goods to their supposed destination, the freight forwarder (at the behest of Buyer X)
sends them to smaller distributors and discount outlets in the United States.
5. The freight forwarder sends a bogus bill of lading to the manufacturer, so the company believes the goods
have been sold overseas.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Leasing in International Markets
Opens the door to a large segment of nominally financed foreign firms that can be purchased on a lease option but might be unable to buy for cash.
Can ease the problems of selling new, experimental equipment because less risk is involved for the users.
Helps guarantee better maintenance and service on overseas equipment.
Helps to sell other companies in that country.
Revenue tends to be more stable over a period of time than direct sales would be.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Why purchasers impose countertrade:
To preserve hard currency
To gain access to new markets
To upgrade manufacturing capabilities
To force reinvestment of proceeds from weapons deals.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Types of countertrade
Product buyback agreement.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Problems of countertrading
Determining the value of and potential demand for the goods offered
Barter houses
Effective for exchange-poor countries.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Facilitating dividend repatriation when dividend repatriation is curtailed by government policy
Arrangements for pricing goods for intra-company transfer:
Sales at the local manufacturing cost plus a standard markup
Sales at the cost of the most efficient producer in the company plus a standard markup
Sales at negotiated prices
Arm’s-length sales using the same prices as quoted to independent customers.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Credit
Should define quantity and quality.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Administered Pricing
Administered pricing is an attempt to establish prices for an entire market.
Cartels
Exists when various companies producing similar products or services work together to control markets for the types of goods and services they produce
Example: OPEC, De Beers.
Restrict price changes
Act as a purchasing monopoly or selling monopoly.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Summary
Pricing is one of the most complicated decisions areas encountered by international marketers.
International marketers must take many factors into account, not only for each country, but often for each market within a country.
Market prices at the consumer level are much more difficult to control in international than in domestic marketing.
Countertrading is an important tool to include in pricing policy.
Copyright 2012 McGraw-Hill Australia Pty Ltd PPTs t/a International Marketing 2e by Cateora
18-*
Summary (cont.)
Pricing in the international marketplace requires a combination of intimate knowledge of market costs and regulations, an awareness of possible countertrade deals, infinite patience for detail and a shrewd sense of market strategy.
