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INTERNATIONAL MARKETS
INTRODUCTION
Global pricing is one of the most critical and complex issues that global firms face so it can give a break or a boost to companys revenue. Importance: Price is the only marketing mix that generates revenue all other entail costs. Local pricing v/s Global pricing Image consistency issue Lack of the coordination in the global market will give rise to gray market or parallel trade situation 5 Cs are main drivers of global pricing strategies of any company operating internationally : COMPANY, COST, CUSTOMER, COMPETITION and CHANNELS
Global Pricing
COMPANY
Growth Maximization/revenue maximization Market penetration
Projection of an image
Companies objectives and goals are different in different market . For example New Balance, the US based shoe maker sells its shoes in France as haute couture rather than athletic shoes and they price it at almost double of the price in US.
COSTS
Costs are different in different markets because of various reasons like labor, raw material etc. Costs are very prominent in pricing decision of a firm because pricing is done to cover the cost involved. Two costs are there Fixed costs, Variable costs
CUSTOMER
If costs set the floor for pricing , consumer willingness to pay sets a ceiling to the price. Consumers role in international pricing is derived by these reasons:
Buying power
Habits & Spending patterns Availability of substitutes
COMPETITION
Competition plays an important role in pricing because we have different kinds of competition in different market: Number of competitors: Monopoly, Perfect competition Nature of competition: Global or local players, state owned or private owned
CHANNELS
Distribution channels determine pricing in different ways depending upon:
Length of channels: Producer to consumer in how many steps Balance of power between manufacturer and retailers Unauthorized distribution channels in the grey markets Example:
US and Germany have direct marketers , supermarkets and specialty retails for personal computers where as in Britain prices are 50 % higher than in Germany with market dominated by Dixons , a retail chain that charges high margins.
Possible approaches include: Charge a uniform price all around the world. Charge what consumers in each country will pay. Use a standard markup of costs everywhere.
International prices tend to be higher than domestic prices because of price escalation.
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Pricing Objectives
Profit-Oriented Pricing Objectives
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IMPORTANCE OF PRICE
Revenue = Unit Price X Number of Units Sold
Revenue pays for every activity. Whats left over is Profit.
To earn a profit, marketers must select a price that is not too high or too low, a price that equals the perceived value to target consumers
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Profit Maximization
Satisfactory Profits
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Market Share
Sales Maximization
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MARKUP PRICING
Markup Pricing
The cost of buying the product from the producer plus amounts for profit and for expenses not otherwise accounted for.
Keystoning
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PROFIT MAXIMIZATION
Profit Maximization
A method of setting prices that occurs when marginal revenue equals marginal cost. The extra revenue associated with selling an extra unit of output, or the change in total revenue with a one-unit change in output.
Marginal Revenue
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Leader Pricing
Bait Pricing
Price Bundling
Combining two or more products in a single package Two separate charges to consume a single good
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Two-Part Pricing
EXPORT PRICING
Export Cost Factors Export Pricing Strategy Export Pricing Methods of Manufacturers Export Cost Factors Product modification cost
Promotion cost
Packaging cost After-sales service cost
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price
Low pricing strategy To penetrate foreign markets To increase market share To dispose of excess or obsolete inventory To discourage new competition Cannot be a long-term strategy
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Moderate pricing strategy Adequate profit margin Can meet competition and maintain market shares Should be long-term strategy
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PRICING PRACTICES
Higher Home Market Prices Lower labor or raw material cost in the international market Strong local competition in the international market Lower buying power of host-country consumers Lower Home Market Prices Justified by: No cost advantages to producing overseas Few or no challenges from international competition Limited market potential International buyers can afford higher prices
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Environmental factors
Market factors
Product factors
Pricing strategies
Other elements
Inflation
Parallel Imports
Price Escalation
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Inflation Eliminates consumers purchasing power Delayed payment will erode profit Strategy Careful price quotations and supply contracts Increase brand value Retain and win trust of customers
Exchange Rate Fluctuations Strategy Review entire operation system Adjust cost structure Increase brand value Check mode of operation in foreign markets
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Price Escalation
To cover the incremental costs (shipping, insurance, tariffs, etc), the final foreign retail price will often be much higher than the domestic retail price. This is known as price escalation. A direct result of products moving across borders Manufacturers Importers Distributor Jobber Consumer Import duty , VAT, GST Operating costs Additional transportation costs Two distributors: high lot and low lot Insurance, packaging, country of origin, other admin. costs
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TRANSFER PRICING
Price of goods transferred between a companys units in different countries.
Benefits of transfer price manipulation: Lower tariffs due to low transfer price. Reduce income tax regions due to low transfer price.
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Transfer Pricing
Home Country
Foreign Country
Taxes
Taxes
Tariffs
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charged the same price as any other buyer, parent makes profit
Cost Plus profits split between parent and subsidiary
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To minimize risk exposure to antidumping actions, exporters might pursue any of these strategies:
Trading-up (low-value to high-value products) Service Enhancement: differentiate your product by adding support services to the core product Distribution and Communication: strategic alliances Set up units in foreign country
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PRICE COORDINATION
When developing a global pricing strategy, one of the thorniest issues is how much coordination should exist between prices charged in different countries Nature of customers: With global customers price coordination is must. For ex. In Europe, Microsoft sets prices that differ by not more than 5% between countries Amount of product differentiation: less differentiation , the larger the need for price coordination.
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Government regulation
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P R E S E N T E D B Y: C H E TA N ( F B 11 0 7 2 ) G U R P R E E T ( F B 11 0 7 4 ) K A R T I K ( F B 11 0 7 9 ) SAURAB
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