Global Marketing

Lecture ten:

Global pricing decisions

Global pricing case study:

Factors influencing pricing strategy

• Company and product factors• Market factors• Environmental factors

Special issues in global pricing

Lee and Carter, 2012

Specific export costs

• Additional freight handling costs• Last minute product modifications• Packaging and labelling• Documentation requirements• Insurance• Delays in custom clearance• Vaguely worded contracts or agreements

Special trade terms in exporting• Ex-works or ex-warehouse

– The price is set from the works or warehouse. Most favourable to the seller

• Free on rail or on truck (FOR/FOT)– The buyer bears the cost of

rail or truck transport which is included in the price

• Free alongside ship (FAS)– The buyer nominates a

ship and the price includes transport to that vessel only

• Free on board: named port of shipment (FOB) – enable the seller to provide

an additional service by including in the price of putting goods on a vessel

• Cost, insurance, freight (CIF)– Most common as very user

friendly for the buyer

Cost reduction strategies

Lee and Carter, 2012

Pricing decisions

• Standardisation• Adaptation• Corridor/Invention

Influencing the response to pricing

• Consumer response• Competitor response

The IKEA experience

• In developed markets– Positioned as a low-priced mass-market brand

• In emerging markets– Low prices are the norm in emerging markets– Ikea targets a growing middle class that aspires to

international lifestyle products– Price is less of a selling point in these markets– DIY does not work well here so Ikea is developing

services for delivery, assembly and installation– Ikea prices are lower in China – Ikea aiming for market share and sales growth in early

years in China and India rather than profit

Pricing objectives

Rate of return Market stabilisation Demand-led pricing Competition-led

pricing To reflect product

differentiation

Market skimming Market penetration Early cash recovery Prevent new entry

Pricing approaches Markup Pricing

◦ Where a standard markup is added to the cost of the product or service◦ Full or marginal costing methods

Target-return Pricing◦ Basically a cost based approach◦ Price is determined by a target ROI

Competitive or Flexible Cost-Plus Pricing◦ Same as target-return but adjustment is made to account for local market

conditions, nature of the customer, size of order, and competitive conditions◦ Going-rate pricing◦ Competitive bid or tendering pricing

Market-based Pricing◦ Perceived value pricing – based on market’s view of pricing◦ Psychological pricing – based on price and quality perceptions◦ Market penetration or dynamic incremental pricing – aim to retrieve only the

variable and international marketing costs, regardless of fixed costs.

Price adaptation

• Geographical pricing• Price discounts and allowances• Promotional pricing• Market/use pricing• Product mix pricing

Vaseline example of market pricing

13 ouncesList price in US: $2.99Price per ounce of jelly: $0.23

0.35 ounceList price in US: $1.99Price per ounce of jelly: $5.69

The global price setting decision process

Lee and Carter, 2012

Global Marketing

Lecture ten:

Global pricing decisions

Module leader: Giovanna Battiston

g.battiston@shu.ac.uk