Transcript Pricing and Distribution

GLOBAL PRICING ISSUES
• Price--definition
• Applicability of price
research outside U.S./Western
Europe
• Pricing issues in international
trade
• Pricing under “hard”
currency scarcity
MKTG 376
PRICING AND DISTRIBUTION
Lars Perner, Instructor
1
Approaches to Pricing
• Cost based
– “Cost-plus”
– Marginal cost for new market
– Experience based costing
• Prestige pricing
• Market based pricing (demand)
• Perceived customer value
MKTG 376
PRICING AND DISTRIBUTION
Lars Perner, Instructor
2
Reasons for Cost Declines With
Volume
• Experience curves
• Economies of
– Scale
– Scope
• Spreading R&D costs over more units
• Lower costs of operating in other
markets
– Labor costs
– Costs of other resources
MKTG 376
PRICING AND DISTRIBUTION
Lars Perner, Instructor
3
Experience Curves
Experience Curve Costs of Production
1.2
Unit Cost
1
0.8
Cost--U.S.
0.6
Cost--Japan
0.4
0.2
0
0
1,000
2,000
3,000
4,000
Cumulative Production
80%
64%
• Experience apart from economies of scale and volume buying
power
• 80% vs. 64% experience curves (actual numbers will vary
depending on specifics)
• Costs of initial units are very high and not very meaningful
• With time, subsequent declines in cost take longer
MKTG 376
PRICING AND DISTRIBUTION
Lars Perner, Instructor
4
The Role of Cost
PRODUCTION
AND MARKETING
COST
VALUE >
COST +
PROFIT?
LOWER COST
THROUGH
VOLUME
INVESTMENT
IN SPECIAL
VALUE
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CUSTOMER
VALUE
MARKET PRICES
FOR SIMILAR
VALUE
VALUE > DIFFERENTIAL
FROM LOWER COST
ALTERNATIVE?
PRICE
CONSIDERED
PRICING AND DISTRIBUTION
PRICE OFFERING
IF VIABLE
Lars Perner, Instructor
5
Financial Issues
• Currency of transaction
– One side will face exchange rate risks
– Costs of hedging and futures contracts
– Currency convertibility and repatriability
• Transfer prices between subsidiaries
– Fairness of evaluation
– Tax consequences  need for “arms length”
transaction
MKTG 376
PRICING AND DISTRIBUTION
Lars Perner, Instructor
6
Price and Positioning
• Strategies
– Market brand
– Value brand
– Prestige brand
• Impact of Product Life Cycle (PLC)
• Cross-market spillover
• Policies
– Polycentric (price set for each set of
markets)
– Geocentric
(global
policy but
individual
MKTG 376
PRICING AND
DISTRIBUTION
Lars Perner,
Instructor 7
“Gray” Trade
• “Gray” vs. “black” markets
– Parallel importing
– Re-importing (e.g., U.S. pharmaceuticals)
• Legality
• Diversion to higher cost markets
(arbitrage)
• “Consumer tourism”—forms
– Limited quantities
– Trip made for purchase of bringing back
materials
– “Nominal”
travel
to legitimize
purchase
MKTG 376
PRICING AND
DISTRIBUTION
Lars Perner,
Instructor 8
Counter Trade
•
•
•
•
Barter
Compensation deals
Counter purchases
Product Buy-Back
MKTG 376
PRICING AND DISTRIBUTION
Lars Perner, Instructor
9
Effects of the Euro
• Stable “exchange rates”
• Easier comparability of prices across
countries
• May have served as sign of international
competitive pressures
• Changing prices to the Euro
–
–
–
–
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Possible opportunity for price increase
Rounding issues
Highly visible and “institutionalized” prices
Concerns about competitor strategies
PRICING AND DISTRIBUTION
Lars Perner, Instructor
10
Distribution
• Transportation logistics
• Role of channel
members
– customs
– legal restrictions
• Structure of channels
• Legal issues
• Infrastructure issues
MKTG 376
PRICING AND DISTRIBUTION
Lars Perner, Instructor
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Retailers--Formats
• Level of
– service
– assortment
• Tradition of where
merchandise is sold
• Location and
convenience
• (Inter)national vs.
local chains
MKTG 376
PRICING AND DISTRIBUTION
Lars Perner, Instructor
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Global Retailing
• Increasing presence of international
retailers across countries
– Outright entry
– Acquisition of local chains continued under
the original name and position
• May be able to take advantage of crossmarket
– Bargaining power
– Economies of scale
•
Balance
with
local
sourcing
MKTG 376
PRICING AND DISTRIBUTION
Lars Perner, Instructor
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Legal Constraints on Retailing
• Restricted store
hours
• Regulation of
assortment
• Preferences for small
retailers
• Product uniformity
• Price maintenance/
selective discounts
MKTG 376
PRICING AND DISTRIBUTION
Lars Perner, Instructor
14
Parallel Distribution
• “Gray” market vs. counterfeiting
• Gray markets--diversion from
– authorized to unauthorized dealers
within a country
– lower cost areas (e.g., Mercedes Benz
from Europe to U.S.)
– temporary promotions in one region
– highly taxed areas (usually through
tourist purchases)
MKTG 376
PRICING AND DISTRIBUTION
Lars Perner, Instructor
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Effects of Gray Trade
• Brand equity
• Relationships with
established dealers
• Legal liabilities
• Complication of
marketing strategies
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PRICING AND DISTRIBUTION
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