Price for global mkt
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Price for global mkt

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Price for global mkt Price for global mkt Presentation Transcript

  • Pricing for IMPricing for IM
  • Pricing strategiesPricing strategies  Pricing is a critical decision inPricing is a critical decision in international marketing managementinternational marketing management because it is a major factor influencingbecause it is a major factor influencing a firm’s total revenue from exports anda firm’s total revenue from exports and its profitability.its profitability.  Pricing is influenced by: product cost,Pricing is influenced by: product cost, purchasing power of the consumer andpurchasing power of the consumer and demand and supply force.demand and supply force.
  • Price and Non-price factorsPrice and Non-price factors The Price factors:The Price factors:  Role of costs, Demand and competitionRole of costs, Demand and competition Non-price factors:Non-price factors:  Brand image, frequency of purchase,Brand image, frequency of purchase, association of price and quality, comprehensiveassociation of price and quality, comprehensive knowledge of the product,before and after salesknowledge of the product,before and after sales service, continuity of supply,prompt delivery,service, continuity of supply,prompt delivery, settlement of claims and supply of completesettlement of claims and supply of complete range of products.range of products.
  • Pricing for Global MarketsPricing for Global Markets  Company Internal factors:Company Internal factors: ProfitabilityProfitability: understanding of cost and profit: understanding of cost and profit variables.variables. Transportation costs:Transportation costs:Shipment of products overShipment of products over long distances, using all modes oflong distances, using all modes of transportation, including rail, truck, air andtransportation, including rail, truck, air and sea,depend on a considerable amount ofsea,depend on a considerable amount of energy.energy. The total cost of transportation has become anThe total cost of transportation has become an issue of growing concern to global companies.issue of growing concern to global companies.
  • PricingPricing  High technology products are less sensitive toHigh technology products are less sensitive to transportation costs than are standardizedtransportation costs than are standardized consumer products or commodities (the sellerconsumer products or commodities (the seller with the lowest transportation costs often has thewith the lowest transportation costs often has the advantage).advantage).  For commodities, low transportation costs canFor commodities, low transportation costs can be the deciding factor for determining who getsbe the deciding factor for determining who gets an order. For expensive products, such asan order. For expensive products, such as computers or sophisticated electroniccomputers or sophisticated electronic instruments, transportation costs usuallyinstruments, transportation costs usually represent only a small fraction of total costs andrepresent only a small fraction of total costs and rarely influence the pricing decision.rarely influence the pricing decision.
  • PricingPricing  The international firms must continuouslyThe international firms must continuously search for new transportationsearch for new transportation technologies to reduce unit transportationtechnologies to reduce unit transportation costs and thus enhance competitiveness.costs and thus enhance competitiveness.
  • TariffsTariffs  When products are transported across nationalWhen products are transported across national borders, tariffs have to be paid unless a specialborders, tariffs have to be paid unless a special arrangement exists between the countriesarrangement exists between the countries involved.involved.  Tariffs are normally assessed as a percentage ofTariffs are normally assessed as a percentage of the value. Although tariffs have declined overthe value. Although tariffs have declined over recent years,they still influence pricing decisionsrecent years,they still influence pricing decisions in some countries.in some countries.  Tariffs are usually levied on the landed costs ofTariffs are usually levied on the landed costs of a product,which includes shipping to thea product,which includes shipping to the importing country.importing country.
  • Cont…Cont…  Tariffs costs can have a rippling effect and canTariffs costs can have a rippling effect and can increase prices considerably for the end user.increase prices considerably for the end user.  Intermediaries tend to include tariff costs in theirIntermediaries tend to include tariff costs in their cost of goods sold, and they add any operatingcost of goods sold, and they add any operating margin to this amount. As a result, the impact onmargin to this amount. As a result, the impact on the final end-user price can be substantialthe final end-user price can be substantial whenever tariff rates are high.whenever tariff rates are high.  In addition to a 45 percent sales tax, 135 percentIn addition to a 45 percent sales tax, 135 percent duty on the value of imported car was imposedduty on the value of imported car was imposed in Egypt. BMW responded by setting up anin Egypt. BMW responded by setting up an assembly plant in a duty-free zone and monthlyassembly plant in a duty-free zone and monthly sales increased.sales increased.
  • TaxesTaxes  Local taxes imposed on imported productsLocal taxes imposed on imported products also affect the land cost of thealso affect the land cost of the products.Various taxes may be imposed.products.Various taxes may be imposed. One of the most common is the value-One of the most common is the value- added tax (VAT). Each EU country sets itsadded tax (VAT). Each EU country sets its own value added tax structure. It has aown value added tax structure. It has a zero tax rate on exported goods.zero tax rate on exported goods.
  • TaxesTaxes  A company exporting from the Netherlands toA company exporting from the Netherlands to Belgium does not have to pay any tax on theBelgium does not have to pay any tax on the value-added in the Netherlands. Howevervalue-added in the Netherlands. However Belgian authorities do collect a tax on productsBelgian authorities do collect a tax on products shipped from the Netherlands at the Belgiumshipped from the Netherlands at the Belgium rate.rate.  Merchandise shipped from a non-memberMerchandise shipped from a non-member country to any EU country, is assessed. Thecountry to any EU country, is assessed. The VAT rate on the landed cost, in addition to anyVAT rate on the landed cost, in addition to any tariffs that may apply to those products.tariffs that may apply to those products.
  • Local production costsLocal production costs  Global firms manufacture products in severalGlobal firms manufacture products in several countries. The operating costs for raw materials,countries. The operating costs for raw materials, wages, energy, or financing may vary widelywages, energy, or financing may vary widely from country to country, allowing a firm to shipfrom country to country, allowing a firm to ship from a particularly advantageous location tofrom a particularly advantageous location to reduce prices or costs. Increasingly, companiesreduce prices or costs. Increasingly, companies produce in locations that give them advantagesproduce in locations that give them advantages in freight, tariffs,or other transfer costs.in freight, tariffs,or other transfer costs. Consequently, judicious management ofConsequently, judicious management of sourcing points may reduce produce costs andsourcing points may reduce produce costs and thus result in added pricing flexibility.thus result in added pricing flexibility.
  • Channel CostsChannel Costs  Channel costs are a function of channel length,Channel costs are a function of channel length, gross margin and logistics. Many countries havegross margin and logistics. Many countries have long distribution channels,which means anlong distribution channels,which means an increase in the number of intermediaries andincrease in the number of intermediaries and thus results in higher total costs and end-userthus results in higher total costs and end-user prices.In addition, gross margins at the retailprices.In addition, gross margins at the retail level tend to vary from country to countrylevel tend to vary from country to country because of different logistics systems. All thesebecause of different logistics systems. All these factors can add extra costs to a product that isfactors can add extra costs to a product that is marketed globally.marketed globally.
  • Market factors affecting pricingMarket factors affecting pricing  Income levels : The income level of a country’sIncome levels : The income level of a country’s population. Determines the amount and type ofpopulation. Determines the amount and type of goods and service bought.goods and service bought.  To respond to the purchasing power of differentTo respond to the purchasing power of different countries, Coca cola prices its product as acountries, Coca cola prices its product as a proportion of disposable income.proportion of disposable income. Elasticity of demand can vary from country toElasticity of demand can vary from country to country.country.
  • Cont…Cont…  Competition: The nature and size of competitionCompetition: The nature and size of competition can significantly affect price levels in any givencan significantly affect price levels in any given market.market.  A firm acting as the sole supplier of a product inA firm acting as the sole supplier of a product in a particular market enjoys greater pricinga particular market enjoys greater pricing flexibility.flexibility.  The number and type of competitors greatlyThe number and type of competitors greatly influence pricing strategy in any market.influence pricing strategy in any market.  The public postal, telephone and telegraphThe public postal, telephone and telegraph services of some countries are a publicservices of some countries are a public monopoly, allowing them to charge high ratesmonopoly, allowing them to charge high rates with threat of competition.with threat of competition.
  • Cont…Cont…  Nature of competition:Local competitors mayNature of competition:Local competitors may have different cost structures from those ofhave different cost structures from those of foreign companies,resulting in different prices.foreign companies,resulting in different prices.  Market prices for the same product may varyMarket prices for the same product may vary from country to country,based on the competitivefrom country to country,based on the competitive situation.In China, local tax structures favor localsituation.In China, local tax structures favor local competitors. E.g tax breaks to carscompetitors. E.g tax breaks to cars
  • Environmental factors affectingEnvironmental factors affecting priceprice  Exchange rate fluctuations: One of theExchange rate fluctuations: One of the most unpredictable factors affecting pricesmost unpredictable factors affecting prices is the foreign exchange rates.As theis the foreign exchange rates.As the exchange rates move up and down, itexchange rates move up and down, it affects all the producers especially thoseaffects all the producers especially those who are operating in countries withwho are operating in countries with appreciating currencies.appreciating currencies.
  • Price ControlsPrice Controls  In some countries, government regulatoryIn some countries, government regulatory agencies influence the price of productsagencies influence the price of products and services.Controls may be applied toand services.Controls may be applied to an entire economy to combatan entire economy to combat inflation;regulations may be applied only toinflation;regulations may be applied only to specific industries, such as thespecific industries, such as the pharmaceutical industry.pharmaceutical industry.
  • Regulatory Factors: Dumping RegulationsRegulatory Factors: Dumping Regulations  The practice of selling a product at a priceThe practice of selling a product at a price below actual costs is referred to asbelow actual costs is referred to as dumping. Because of potential injuries todumping. Because of potential injuries to domestic manufacturers, mostdomestic manufacturers, most governments have adopted regulationsgovernments have adopted regulations against dumping.against dumping.  Antidumping cases have tripled since theAntidumping cases have tripled since the 1980s.Safeguard investigations are1980s.Safeguard investigations are initiated.initiated.
  • International pricing strategiesInternational pricing strategies  Strategic pricing: price taker, simply adopting theStrategic pricing: price taker, simply adopting the price levels and conventions of competing firms.price levels and conventions of competing firms.  Penetrating pricingPenetrating pricing  Skimming: high prices for luxury versions ofSkimming: high prices for luxury versions of established products.established products.  INCOTERMS: The international chamber ofINCOTERMS: The international chamber of commerce publishes a set of export deliverycommerce publishes a set of export delivery terms (incoterms) for use in international trade.terms (incoterms) for use in international trade.
  • Cont…Cont…  Price discrimination: different prices arePrice discrimination: different prices are charged in different markets for the samecharged in different markets for the same goods. It recognizes that each market isgoods. It recognizes that each market is unique.unique.  Predatory pricing: adopting a price so lowPredatory pricing: adopting a price so low that competitors are forced to leave thethat competitors are forced to leave the market, thus enabling the predator to raisemarket, thus enabling the predator to raise prices in the long run.prices in the long run.
  • Cont…Cont…  Transfer pricing: setting the price levels atTransfer pricing: setting the price levels at which a parent firm” sells” its output towhich a parent firm” sells” its output to subsidiaries in other countries. Transfersubsidiaries in other countries. Transfer prices need to be realistic in order that theprices need to be realistic in order that the profitability of various internationalprofitability of various international operations may be assessed.operations may be assessed.
  • Global communication strategyGlobal communication strategy  Push-oriented strategy: personal selling.Push-oriented strategy: personal selling.  Channel length can also be an important factorChannel length can also be an important factor in determining the amount of personal selling orin determining the amount of personal selling or push strategy to be used.push strategy to be used.  If a company faces the same channel lengthIf a company faces the same channel length abroad as it does in the domestic market, noabroad as it does in the domestic market, no change is needed in the push strategy.change is needed in the push strategy. However,when a company faces a longerHowever,when a company faces a longer channel because other intermediaries such aschannel because other intermediaries such as local distributors, are added, the firm may belocal distributors, are added, the firm may be better off shifting to a pull campaign.better off shifting to a pull campaign.
  • Cont…Cont…  Push strategy is characterized by greaterPush strategy is characterized by greater dependence on advertising directed at thedependence on advertising directed at the end user of a product or a service. Pullend user of a product or a service. Pull campaigns are typical for consumer goodcampaigns are typical for consumer good firms that need to approach a largefirms that need to approach a large segment of the market.segment of the market.
  • Personal sellingPersonal selling  Global selling through multi-country salesGlobal selling through multi-country sales forceforce  Purchasing behaviorPurchasing behavior  Buying criteriaBuying criteria  LanguageLanguage  Business etiquette: work culture inBusiness etiquette: work culture in different countries.different countries.
  • InternationalizingInternationalizing communicationcommunication  Standardization or customization ofStandardization or customization of promotional messages.promotional messages.  Translation of messagesTranslation of messages  Internal advertising agencyInternal advertising agency  International media planningInternational media planning  Below the line marketingBelow the line marketing communication(besides advertising, likecommunication(besides advertising, like PR, corporate branding)PR, corporate branding)
  • International marketingInternational marketing  International direct marketingInternational direct marketing -Direct mail-Direct mail  International relationship marketing:it seeks to establishInternational relationship marketing:it seeks to establish long-term relationships with customers based on trustlong-term relationships with customers based on trust and mutual co-operation.and mutual co-operation.  Techniques include: the extensive provision ofTechniques include: the extensive provision of information on the firm and its products, personalizationinformation on the firm and its products, personalization of communications with customers, free gifts andof communications with customers, free gifts and samples,attractive premium offers, and the carefulsamples,attractive premium offers, and the careful monitoring of the relationship formed with particularmonitoring of the relationship formed with particular customers.customers.
  • Cont…Cont…  International sales promotion: to stimulateInternational sales promotion: to stimulate impulse purchasing, encourage consumerimpulse purchasing, encourage consumer loyalty, shift slow moving stock,increaseloyalty, shift slow moving stock,increase the frequency of repeat buying, smooththe frequency of repeat buying, smooth out seasonal demand, and generally drawout seasonal demand, and generally draw attention to the firm and its products.attention to the firm and its products.  Trade fairs and exhibitionsTrade fairs and exhibitions