Transcript Chapter18 Students

International Marketing
16th edition
Philip R. Cateora, Mary C. Gilly, and John L. Graham
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Introduction
18
• Setting the right price for a product or service is
the Key to success or failure
• An offering’s price must reflect the quality and
value the consumer perceives in the product
• Globalization of world markets
– Intensifies competition among multinational and
home-based companies
• The marketing manager’s responsibility
– To set and control the actual price of goods in
different markets in which different sets of
variables are to be found
Roy Philip
18-2
Overview
18
• Components of pricing as competitive tools in
international marketing
• The pricing pitfalls directly related to
international marketing
• How to control pricing in parallel imports or
gray markets
• Price escalation and how to minimize its effect
• Countertrading and its place in international
marketing practices
• The mechanics of price quotations
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18-3
Global Perspective –
the Price War
18
• The battle between P&G and Kimberly-Clark is
bringing Pampers and Huggies, respectively, to
places they have never been, forcing down diaper
prices worldwide, and expanding the global
market for disposable diapers
• P&G entered Brazil with Pampers Uni, a non-frill
unisex diaper; Kimberly-Clark entered Brazil
and imported Huggies “push girls” from
Argentina, hurting P&G
• P&G and Kimberly-Clark began a terrible price
war that hurt both of them in the end
Roy Philip
18-4
International Marketing
16th edition
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Pricing Policy
Pricing Objectives
18
• Pricing as an active instrument of accomplishing
marketing objectives
– The company uses price to achieve a specific
objective
• Pricing as a static element in a business decision
– Exports only excess inventory
– Places a low priority on foreign business
– Views its export sales as passive contributions to
sales volume
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18-6
Pricing Policy
Parallel Imports
18
• 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
• Occur whenever price differences are greater
.
than
cost of transportation between two markets
• Major problem for pharmaceutical companies
• Exclusive distribution
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How Gray-Market Goods
End Up in U.S. Stores
18
Exhibit 18.1
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18-8
Approaches to
International Pricing
18
• Company policy relates to net price received
– Control over end prices
– Control over net prices
• Cost and market considerations
• Employ pricing as part of strategic mix
– Market-oriented pricing factors
Roy Philip
18-9
International Marketing
16th edition
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Full-Cost Versus
Variable-Cost Pricing
18
• Variable-cost pricing
– Firm is concerned only with the marginal or
incremental cost of producing goods to be sold in
overseas markets
• Full-cost pricing
– Companies insist that no unit of a similar product
is different from any other unit in terms of cost
– Each unit must bear full share of the total fixed
and variable cost
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18-11
Skimming Versus
Penetration Pricing
18
• Skimming
– Used by a company when the objective is to reach
a segment of the market that is relatively price
insensitive
– Market is willing to pay a premium price for the
value received
• Penetration pricing policy
– Used to stimulate market and sales growth by
deliberately offering products at low prices
Roy Philip
18-12
International Marketing
16th edition
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Price Escalation (1 of 3)
18
• Costs of exporting
– Price escalation
• Taxes, tariffs, and administrative costs
– Taxes include tariffs
– Tariff – fee charged when goods are brought into
a country from another country
– Administrative costs
• Include export and import licenses
• Other documents
• Physical arrangements for getting the product
from port of entry to the buyer’s location
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18-14
Price Escalation (2 of 3)
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
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18-15
Price Escalation (3 of 3)
18
• Varying currency values
– Changing values of a country’s currency relative
to other currencies
– Cost-plus pricing
• Middleman and transportation costs
– Channel diversity
– Underdeveloped marketing and distribution
channel infrastructures
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18-16
Sample Causes and Effects 18
of Price Escalation
Exhibit 18.2
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18-17
International Marketing
16th edition
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Approaches to Lessening
Price Escalation (1 of 2)
18
• Lowering cost of goods
– Manufacturing in a third country
– Eliminating costly functional features
– Lowering overall product quality
• Lowering tariffs
– Reclassifying products into a different, and lower
customs classification
– Modify product to qualify for a lower tariff rate
within classification
– Requiring assembly or further processing
– Repackaging
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18-19
Approaches to Lessening
Price Escalation (2 of 2)
18
• Lowering distribution costs
– Shorter channels
– Reducing or eliminating middlemen
• Using foreign trade zones to lessen price
escalation
– Establish free trade zones (FTZs) or free ports
• Tax-free enclave not considered part of country
• Postpones payment of duties and tariffs
• Dumping
– Use of marginal (variable) cost pricing
– Selling goods in foreign country below the price of
the same goods in the home market
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18-20
How Are Foreign
Trade Zones Used?
18
Exhibit 18.3
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18-21
Leasing in International
Markets(1 of 2)
18
• Selling technique that alleviates high prices and
capital shortages
• Opens the door to a large segment of nominally
financed foreign firms
– Firms can be sold 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
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18-22
Leasing in International
Markets(2 of 2)
18
• 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
• Leasing disadvantages
– Inflation may lead to heavy losses at end of
contract period
– Currency devaluation, expropriation and political
risks
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18-23
Countertrade as a Pricing Tool 18
(1 of 3)
• A tool every international marketer must be
ready to employ
– Often gives company a competitive advantage
• Russia and PepsiCo
– Trading vodka and wine for soft drinks
• Countertrade – part of the market-pricing tool
kit
Roy Philip
18-24
International Marketing
16th edition
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Countertrade as a Pricing Tool 18
(2 of 3)
• Types of countertrade
–
–
–
–
Barter
Compensation deals
Counterpurchase or offset trade
Product buyback agreement
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18-26
Countertrade as a Pricing Tool 18
(3 of 3)
• Problems of countertrading
– Determining the value of and potential demand
for the goods offered
– Barter houses
• The Internet and countertrading
– Electronic trade dollars
– Universal Currency/IRTA
• Proactive countertrade strategy
– Included as part of an overall market strategy
– Effective for exchange-poor countries
Roy Philip
18-27
International Marketing
16th edition
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Transfer Pricing Strategy
(1 of 2)
18
• Prices of goods transferred from a company’s
operations or sales units in one country to its
units elsewhere
– May be adjusted to enhance the ultimate profit of
company
• Benefits
– Lowering duty costs
– Reducing income taxes in high-tax countries
– Facilitating dividend repatriation when dividend
repatriation is curtailed by government policy
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18-29
Transfer Pricing Strategy
(2 of 2)
18
• Objectives
– Maximizing profits for corporation
– Facilitating parent-company control
– Providing all levels of management control over profitability
• Arrangements for pricing goods for intracompany 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
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18-30
Price Quotations
18
• May include specific elements affecting the price
–
–
–
–
–
Credit
Sales terms
Transportation
Currency
Type of documentation required
• Should define quantity and quality
Roy Philip
18-31
International Marketing
16th edition
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Administered Pricing
(1 of 2)
18
• The attempt to establish prices for the entire market.
• Cartels
– Exist when various companies producing similar products or services
work together
• To control markets for the types of goods and services they produce
– May use formal agreements
• To set prices
• Establish levels of production and sales for participating countries
• Allocate market territories
• Redistribute profits
• May take over entire selling function
– Examples
• OPEC; The Trans-Atlantic Conference Agreement; De Beers
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Diamond Cartel
18-34
Administered Pricing
(2 of 2)
18
• Government-influenced pricing
–
–
–
–
–
–
Establishes margins
Sets prices and floors or ceilings
Restricts price changes
Competes in the market
Grants subsidies
Acts as a purchasing monopsony or selling
monopoly
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18-35
Summary (1 of 2)
18
• Pricing is one of the most complicated decisions
areas encountered by international marketers
• International marketers must take many factors
into account
– For each country
– For each market within a country
• Market prices at consumer level are much more
difficult to control in international than in
domestic marketing
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18-36
Summary (2 of 2)
18
• Controlling costs that lead to price escalation when
exporting products is:
– One of the most challenging pricing tasks facing the
exporter
• Countertrading is an important tool in pricing policy
• 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
– A shrewd sense of market strategy
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18-37