International Pricing Strategy w11
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Transcript of International Pricing Strategy w11
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Chamila Perera
After this lecture you should be able to:
Describe the drivers of foreign market pricing
Explain the management of price escalation
Explain the management of pricing in inflationaryenvironments
Discuss strategies for managing the effects of currencyfluctuations
Describe the use of transfer pricing
Explain the implications of antidumping regulations
Understand how to implement pricing coordination Describe countertrade
ProductPromotionplace
pricing
http://www.google.com.au/imgres?q=foreign+currency+pictures&hl=en&rlz=1R2SKPB_enAU367&biw=1280&bih=556&tbm=isch&tbnid=m8AQpTYbNwmLdM:&imgrefurl=http://www.123rf.com/photo_6611255_foreign-currency-exchange-stock-market-as-concept.html&docid=ayQ0zTW10Xe6KM&w=400&h=400&ei=Xy2RTpXXB-znmAX3k937DQ&zoom=1&iact=rc&dur=0&page=9&tbnh=159&tbnw=163&start=137&ndsp=22&ved=1t:429,r:8,s:137&tx=91&ty=112 -
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http://www.exchange-rates.org/history/AUD/USD/G/30
http://www.youtube.com/watch?v=M1AgBRnwYvk
Strong Australian dollar poses e conomic danger
http://www.youtube.com/watch?v=xNHsge_6hHM&feature=related
Japanese Companies Fight Rising Yen Value
Proctor and Gamble selling smallsachets of shampoo in developingmarkets due to low buying power
Louis Vuitton targets morebroadly in developed countrieslike Japan than it does indeveloping countries (projectingpremium image)
http://www.youtube.com/watch?v=M1AgBRnwYvkhttp://www.youtube.com/watch?v=xNHsge_6hHM&feature=relatedhttp://www.aygee.net.au/content/images/800px-Procter_and_Gamble_Logo_svg.pnghttp://www.google.com.au/imgres?imgurl=http://im.in.com/connect/images/profile/sep2009/Louis_Vuitton_300.jpg&imgrefurl=http://connect.in.com/louis-vuitton/profile-538580.html&usg=__JJzzHBpwez5QwRM65C0DyYIk6HA=&h=360&w=300&sz=6&hl=en&start=4&zoom=1&itbs=1&tbnid=cUpMh7kRGLydYM:&tbnh=121&tbnw=101&prev=/search?q=louis+vuitton&hl=en&biw=1260&bih=866&tbm=isch&ei=smbDTbWfCoi-vgOJ19WnAQhttp://www.youtube.com/watch?v=xNHsge_6hHM&feature=relatedhttp://www.youtube.com/watch?v=M1AgBRnwYvk -
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Our range is worn by A listcelebrities to the likes of KimKardashian, Selena Gomez andKaty Perry to name only a few.Now, as one might appreciate,
the style counsel for these types
of celebrities are not ones to pickrun of the mill type clothing,
and they do so on the basis toensure that the styles are cuttingedge, and only worn by a select
few. Similarly these items arepriced such that they remaininaccessible to the undesirable.
channels(distribution)
customers(price
sensitivityand
segments)competition(nature andintensity)
company(costs andgoals
Governmentpolices
The organisation needs to decide what it want to accomplish through itsinternational pricing strategy.
Its goals might include maximising current profits, penetrating the marketor projecting a premium image.
Cost differentials between countries can lead to wide difference in price.
Organisation costs figure prominently in the pricing decision.
Costs set the floor: the organisations want to set at least a price that will cover all costs needed to make and sell its products.
company(costs andgoals
OR
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Cost-plus pricing
adding international costsand a markup to thedomestic manufacturingcost
Dynamic incrementalpricingbased on the internationalcosts and that ignoresdomestic fixed costs
Could triggeraccusations ofdumping
company(costs andgoals
Pacific Dunlap sent(2009) its manufacturing(Bonds, King Gee, andHard Yakka) to Asia
Hindustan Leverspends a lot its R&Don developing newtechnologies to reducemanufacturing costs
customers(price
sensitivityand
segments)
Customer demand is
also a function ofbuying power, tastes,habits, cultural normsand substitutes
Low price vs luxury image
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Check this clip Here's an Idea-Amazon.com theLowest Price Aroundhttp://www.youtube.com/watch?v=rSlz-NYC6-0
Briefly answer the following.
Online business models often bring internationalretail marketers competitive advantages throughminimising costs. This enables them to offer moreattractive prices than competitors in the market. Canall online marketers gain this advantage? What areother key factors that determine attractive onlinepricing?
Taxation regulation
sales tax on cars in the EU
15% in Luxembourg - 213% in DenmarkEven after the launch of the euro, car prices in the EUcan still vary by up to 50 per cent.
recent reduction on tax on importedwines in Hong Kong allows for a
reduction in end selling price
Governmentpolices
channels(distribution)
customers(price
sensitivityand
segments)
competition(nature andintensity)
company(costs andgoals
GovernmentpolicesShipping,
insurance
Tax andtariffs
margins ofintermediaries
The process of covering incremental costs (e.g. Shipping,insurance, tariffs, margins of intermediaries) that make thefinal foreign retail price higher than the domestic price
http://www.youtube.com/watch?v=rSlz-NYC6-0http://www.youtube.com/watch?v=rSlz-NYC6-0http://www.youtube.com/watch?v=rSlz-NYC6-0http://www.youtube.com/watch?v=rSlz-NYC6-0http://www.youtube.com/watch?v=rSlz-NYC6-0http://www.youtube.com/watch?v=rSlz-NYC6-0 -
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TWO BROAD APPROACHES TO DEALINGWITH PRICE ESCALATION
Find ways to cut the export price
Position the product as a premium brand
rearrange the distribution channeli.e., Bypass Japanese Kairetsu through direct marketing
rearrange costly features (or make them optional)i.e., offer the no-frills version of a Sony Vaio in Cambodia give thecustomer the option to upgrade
downsize the product make a smaller version of theproduct
assemble or manufacture in foreign marketsi.e., BMW assemble cars in South Africa
adapt the product to escape tariffs or tax leviesi.e., RANG ROVER car or a truck?
Ways to safeguard against inflation modify components/ingredients
not all components maybe subject to the same level of
inflation source material from low cost suppliers
import from low inflation countries
shorten credit terms juggle terms of payment
include escalator clauses in long-term contracts to provide necessary protection
quote prices in a stable currency Dollar or Euro
pursue rapid inventory turnovers use of IT and JIT delivery to yield competitive advantage
draw lessons from other countries
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Action Purpose
adapt the productline
to reduce exposure to a government imposed pricefreeze
shift targetsegments or markets
to shift the organisations target segment
launch newproducts or variantsof existing products
navigate around by systematically launching ne wproducts or modifying existing ones.
negotiate with thegovernment
to negotiate for permission to adjust their prices.Lobbying can be done individually, but it is more likelyto be successful if done industry wide.
predict pricecontrols
Given historical information on the occurrence of pricecontrols and other economic variables, econometricmodels can be constructed to forecast the likelihood ofprice controls.
Exporters and importers are subject to thewhims of currency movements.
a strategic view of the problem should beundertaken
Two major managerial pricing issues resultfrom currency movements
the Pass-through issue. How
much currency movements arereflected in changes to the price
customers pay.
the Pricing-to-market (PTM).
Destination-specific adjustmentsof mark ups in response toexchange rate movements.
A weakening dollarallows Australianbased organisations tolower the yen-price of
Australian goodsexported to Japan
This enables Australian exportersto steal market share away from thelocal Japanese competitors without
sacrificing profit
A strong dollar willundermine the
competitive position ofAustralian exporters
The retail price in yen goes upas a result Australian
exporters might lose marketshare
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Source: Terry Clark, Masaaki Kotabeand Dan Rajaratnam (1999) Exchange Rate Pass-Through and International PricingStrategy: A Conceptual Framework and Research Propositions Journal of International Business Studie... >Vol. 30, No. 2, 2nd Qtr ,Pge249 of 249-268.
The extent of exchange rate pass-through in
international pricing is affected
By:
the firm's pricing orientation
performance orientation
Distribution policy
brand equity
exchange rate uncertainty Competitive structure
http://www.youtube.com/watch?v=fS8n1kdl5_8
http://www.jstor.org.ezp.lib.unimelb.edu.au/stable/i301361http://www.jstor.org.ezp.lib.unimelb.edu.au/action/showPublication?journalCode=jintebusistudhttp://www.jstor.org.ezp.lib.unimelb.edu.au/action/showPublication?journalCode=jintebusistudhttp://www.jstor.org.ezp.lib.unimelb.edu.au/stable/i301361http://www.youtube.com/watch?v=fS8n1kdl5_8http://www.youtube.com/watch?v=fS8n1kdl5_8http://www.youtube.com/watch?v=fS8n1kdl5_8http://www.youtube.com/watch?v=fS8n1kdl5_8http://www.jstor.org.ezp.lib.unimelb.edu.au/stable/i301361http://www.jstor.org.ezp.lib.unimelb.edu.au/stable/i301361http://www.jstor.org.ezp.lib.unimelb.edu.au/action/showPublication?journalCode=jintebusistudhttp://www.jstor.org.ezp.lib.unimelb.edu.au/action/showPublication?journalCode=jintebusistudhttp://www.jstor.org.ezp.lib.unimelb.edu.au/action/showPublication?journalCode=jintebusistud -
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A quick question for you
Should exporters pass through gains (or lose)
they make from currency movements to theircustomers?
Figure 14.1 Exporter strategies under varying currency conditions
Currency quotation
Which currency should be used in international businesstransactions?
which party should bear the risk?
Quoting a common currency could be a way of sharing therisk
US dollar across countries with their own currency
Sellers and buyers usually prefer a quote in their domesticcurrency.
That way, the other party will have to bear currency risks.
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Transfer pricingPrices charged for sales transactions amongrelated entities of the same organization indifferent countries
Factors of Transfer pricingtax regimeslocal market conditionsmarket imperfectionsjoint venture partnermorale of local country managers
International pricing and antidumping regulation
Dumpingintroducing a product to themarket of another country atmuch less than the productsnormal value in the homemarket
to protect local producersagainst the encroachment oflow-priced imports,government may levycountervailing duties or fines.
WTO helps regulating some of this behaviourGovernments of countries can seek redress withWTO if they feel another country has dumped
product in their marketmember countries must comply with WTOrulings
Price coordination
Price coordination is critical for global (or regional
brands) that are marketed with no or very fewcrossborder variations
IF MARGINAL COST ARE ROUGHLY EQUIVALENT ,ORGANISATIONS WOULD CHARGE RELATIVELY LOWPRICES IN HIGHLY PRICE SENSITIVE COUNTRIES ANDHIGH PRICE IN PRICE INSENSITIVE MARKETS
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Price coordination : Similar priceacross markets depends on:
nature of customersApple prices globally to cater for a global segment and avoidparallel imports
amount of product differentiation
identical products probably need to be priced identicallynature of channels
how much control over international distributors?
nature of competition
competing with the same rival in a given regionmarket integration
when markets integrate barriers to cross border movement ofgoods come down
internal organisationgovernment regulation
Activity 2Quickly read Microsoft rethinks unified pricingstrategy
See whether you can find international pricingrelated theoretical concepts that we discussed so farin the lecture. Underline them.
Will the proposed strategy work? What do youthink?
Increasingly, purchasers demand global-pricing contracts (GPCs)from their suppliers.
Before engaging in a GPC with a purchaser, it is important forcompanies to do their homework:
Select customer who want more than just the lowest price
Align the suppliers organisation with the customers
Hire global account manger who can handle diversity.
Reward those global-account managers and local salesrepresentatives who make the relationship work
Allow for some pricing flexibility
Building information systems to monitor the key variables (e.g.cost variations, competitive situation)
http://www.youtube.com/watch?v=RQ8QsqdJq0chttp://www.youtube.com/watch?v=Qf4jtatsGoY&NR=1
http://www.youtube.com/watch?v=RQ8QsqdJq0chttp://www.youtube.com/watch?v=Qf4jtatsGoY&NR=1http://www.youtube.com/watch?v=Qf4jtatsGoY&NR=1http://www.youtube.com/watch?v=Qf4jtatsGoY&NR=1http://www.youtube.com/watch?v=RQ8QsqdJq0chttp://www.youtube.com/watch?v=RQ8QsqdJq0c -
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Countertrade is an umbrella term used to describeunconventional trade-financing transactions that involvesome form of non-cash compensation
The trading of products without direct monetary payments
Pepsis US$ 3 billion arrangement with theformer Soviet Union to swap Pepsi f or profitsin Stolichnaya vodka and ocean freightersand tankers
15% of world trade!(some say its about30 %-50 %)
Barter - Direct exchange of goods
Compensation deal - cash and products
Buyback - buy completed products from the supply ofcomponents
Offset - cash but spent in the customer country
Other parties - Trading houses
http://www.psfk.com/wp-content/uploads/2008/10/pepsi-2.png -
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(1) ________________ is the only marketing mixinstrument that creates revenues.
a. Product
b. Price
c. Place
d. Promotion
(2) All of the following are drivers that governglobal pricing decisions EXCEPT:
A. Company
B. Customers
C. Controls
D. Competition
(3) In the international marketplace,_________________ pricing adds internationalcosts and a mark-up to the domesticmanufacturing cost.
A. Dynamic incremental pricing
B. Export price
C. Import price
D. Cost-plus price
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(4) One of the risks of dynamic incrementalpricing (in the case where the export list price
is far below the domestic price) that_____________ can be triggered in the exportmarket.
a. High profit potential
b. Dumping charges or accusations
c. Falling profits
d. Falling quality
(5) ________________ is a function of buyingpower, tastes, habits, cultural norms andsubstitutes.
a. Customer needs
b. Customer demand
c. Competition
d. Company costs
(6) Countries with low per-capita income aremore __________ than in developed countries.
a. Promotion sensitive
b. Price sensitive
c. Need sensitive
d. Demand sensitive
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(7) Once brand loyalty has been established,price will play less of a role as a purchase
criterion, and the firm may be able to institute a________________ strategy.
a. Demand-based
b. Premium pricing
c. Elastic pricing
d. Promotion-related pricing
(8) There are two ways to deal with the priceescalation phenomenon. One of these methodsis to cut the export price. The other is to:
a. Change the promotion strategy
b. Position the product as a (super) premium brand
c. Position the product as a lower quality brand
d. Reduce retailer margins.
(9) Which of the following would be a good
option to follow if lowering the export pricewere the firms objective?
a. Rearrange the distribution channel
b. Change the promotion
c. Change the warranty provisions
d. Give more of the product in the package asan incentive to purchase
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(10) How can Australian exporters minimisethe effects of price escalation in foreign
markets?