PRICING FOR INTERNATIONAL MARKETS Session 11
THE STAGES OF DEVELOPMENT AND IMPLEMENTATION OF PRICING STRATEGIES <ul><li>Analysing the factors which influence internati...
FACTORS INFLUENCING THE PRICING STRATEGY Company and Product Factors <ul><li>Corporate and marketing objectives </li></ul>...
FACTORS INFLUENCING THE PRICING STRATEGY Market Factors <ul><li>Consumers perceptions, expectations and ability to pay </l...
FACTORS INFLUENCING THE PRICING STRATEGY Environmental Factors <ul><li>Government influences and constraints </li></ul><ul...
THE EFFECT OF ADDITIONAL EXPORT SALES ON CONTRIBUTION
SPECIFIC EXPORT COSTS  (International Cost Reduction) <ul><li>Economies of scale </li></ul><ul><li>Learning curve </li></u...
SPECIFIC EXPORT COSTS
INFLUENCING THE RESPONSE TO PRICING <ul><li>Consumer response </li></ul><ul><ul><li>Distinctiveness of product </li></ul><...
PRICING STRATEGIES AND OBJECTIVES <ul><li>Standardisation </li></ul><ul><ul><li>Ethnocentric </li></ul></ul><ul><li>Adapti...
PRICING OBJECTIVES <ul><li>Rate of return </li></ul><ul><li>Market stabilisation </li></ul><ul><li>Demand-led pricing </li...
SETTING A PRICE (Export pricing) <ul><li>Determine export market potential </li></ul><ul><li>Estimate the price range and ...
PRICING PROBLEMS <ul><li>Multi-national pricing </li></ul><ul><li>Managing foreign currency / floating exchange rates </li...
THREE TYPES OF GREY MARKET SOURCE: Assmus and Weiss (1995)
PARALLEL IMPORTING OR GREY MARKETING <ul><li>Conditions: </li></ul><ul><ul><li>Product priced lower in home market </li></...
DEFENCE AGAINST GREY MARKETING <ul><li>Seek government intervention or legal protection </li></ul><ul><li>Refusal to issue...
A FRAMEWORK FOR SELECTING A  CO-ORDINATION METHOD Source: Assmus & Wiess (1995)
TRANSFER PRICING <ul><li>Bases of Transfer: </li></ul><ul><ul><li>At cost </li></ul></ul><ul><ul><li>At arm’s’ length </li...
CURRENCY OF PRICING <ul><li>Benefits of quoting in a foreign currency </li></ul><ul><ul><li>provide access to finance abro...
MANAGING CURRENCY FLUCTUATIONS Domestic Currency Weak <ul><li>Compete on price </li></ul><ul><li>Introduce new products wi...
MANAGING CURRENCY FLUCTUATIONS When Domestic Currency Strong <ul><li>Compete on non-price factors (quality, delivery, serv...
TYPES OF COUNTER-TRADE <ul><li>Barter </li></ul><ul><li>Compensation trading </li></ul><ul><li>Counter-purchase </li></ul>...
COUNTER-TRADE Advantages <ul><li>New markets </li></ul><ul><li>Sell off surplus or poor quality products </li></ul><ul><li...
COUNTER-TRADE Disadvantages and Limitations <ul><li>Lack of flexibility </li></ul><ul><li>Exchange products difficult to s...
THE EXPORT ORDER PROCESS
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Ch11

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Ch11

  1. 1. PRICING FOR INTERNATIONAL MARKETS Session 11
  2. 2. THE STAGES OF DEVELOPMENT AND IMPLEMENTATION OF PRICING STRATEGIES <ul><li>Analysing the factors which influence international pricing </li></ul><ul><ul><li>such as the cost structures, the value of the product, the market structure, competitor pricing levels and a variety of environmental constraints. </li></ul></ul><ul><li>Confirming what impact the corporate strategies should have on pricing policy. </li></ul><ul><li>Evaluating the various strategic pricing options </li></ul><ul><ul><li>and selecting the most appropriate approach. </li></ul></ul><ul><li>Implementing the strategy through the use of a variety of tactics and procedures </li></ul><ul><ul><li>to set prices at SBU level. </li></ul></ul><ul><li>Managing prices and financing international transactions. </li></ul>
  3. 3. FACTORS INFLUENCING THE PRICING STRATEGY Company and Product Factors <ul><li>Corporate and marketing objectives </li></ul><ul><li>Firm and product positioning </li></ul><ul><li>Product range, life cycle, substitutes, product differentiation and unique selling propositions </li></ul><ul><li>Cost structures, manufacturing, experience effect and economies of scale </li></ul><ul><li>Marketing, product development </li></ul><ul><li>Available resources </li></ul><ul><li>Inventory </li></ul><ul><li>Shipping costs </li></ul>
  4. 4. FACTORS INFLUENCING THE PRICING STRATEGY Market Factors <ul><li>Consumers perceptions, expectations and ability to pay </li></ul><ul><li>Need for product adaptation, market servicing </li></ul><ul><li>Market structure, distribution channels discounting pressures </li></ul><ul><li>Market growth, demand elasticities </li></ul><ul><li>Need for credit </li></ul><ul><li>Competition objectives, strategies and strengths </li></ul>
  5. 5. FACTORS INFLUENCING THE PRICING STRATEGY Environmental Factors <ul><li>Government influences and constraints </li></ul><ul><li>Currency fluctuations </li></ul><ul><li>Business cycle stage, level of inflation </li></ul><ul><li>Use of non-money payment and leasing </li></ul>
  6. 6. THE EFFECT OF ADDITIONAL EXPORT SALES ON CONTRIBUTION
  7. 7. SPECIFIC EXPORT COSTS (International Cost Reduction) <ul><li>Economies of scale </li></ul><ul><li>Learning curve </li></ul><ul><ul><li>Greater labour efficiency </li></ul></ul><ul><ul><li>Task specialisation and method improvement </li></ul></ul><ul><ul><li>New production processes </li></ul></ul><ul><ul><li>Better performance of existing equipment </li></ul></ul><ul><ul><li>Changes to the mix of resources </li></ul></ul><ul><ul><li>Greater product standardisation </li></ul></ul><ul><ul><li>Improved product designs </li></ul></ul><ul><li>Location of Production Facility </li></ul><ul><ul><li>Comparative advantage </li></ul></ul><ul><ul><li>Manufacturing costs in developed countries </li></ul></ul>
  8. 8. SPECIFIC EXPORT COSTS
  9. 9. INFLUENCING THE RESPONSE TO PRICING <ul><li>Consumer response </li></ul><ul><ul><li>Distinctiveness of product </li></ul></ul><ul><ul><li>Level of perceived quality </li></ul></ul><ul><ul><li>Awareness of substitutes </li></ul></ul><ul><ul><li>Ease of making comparisons </li></ul></ul><ul><ul><li>Price as a proportion of total expenditure </li></ul></ul><ul><ul><li>Perceived benefit </li></ul></ul><ul><ul><li>Use of product in conjunction with another </li></ul></ul><ul><ul><li>Shared costs of purchase </li></ul></ul><ul><ul><li>Perishability </li></ul></ul><ul><li>Competitors’ response </li></ul><ul><ul><li>Commitment to markets and products </li></ul></ul><ul><ul><li>Resources available </li></ul></ul><ul><ul><li>Internal cost structures </li></ul></ul><ul><ul><li>Customer/distribution chain loyalty </li></ul></ul>
  10. 10. PRICING STRATEGIES AND OBJECTIVES <ul><li>Standardisation </li></ul><ul><ul><li>Ethnocentric </li></ul></ul><ul><li>Adaption </li></ul><ul><ul><li>Polycentric </li></ul></ul><ul><li>Invention </li></ul><ul><ul><li>Geocentric </li></ul></ul><ul><li>Are you taking a: </li></ul><ul><ul><li>cost oriented </li></ul></ul><ul><ul><li>market oriented </li></ul></ul><ul><ul><li>competition oriented approach? </li></ul></ul>
  11. 11. PRICING OBJECTIVES <ul><li>Rate of return </li></ul><ul><li>Market stabilisation </li></ul><ul><li>Demand-led pricing </li></ul><ul><li>Competition-led pricing </li></ul><ul><li>To reflect product differentiation </li></ul><ul><li>Market skimming </li></ul><ul><li>Market penetration </li></ul><ul><li>Early cash recovery </li></ul><ul><li>Prevent new entry </li></ul>
  12. 12. SETTING A PRICE (Export pricing) <ul><li>Determine export market potential </li></ul><ul><li>Estimate the price range and target price </li></ul><ul><li>Calculate sales potential at the target price </li></ul><ul><li>Evaluate tariff and non-tariff barriers </li></ul><ul><li>Select suitable pricing strategy in line with company objectives </li></ul><ul><li>Consider likely competitor response </li></ul><ul><li>Select pricing tactics, set distributor and end-user prices </li></ul><ul><li>Monitor performance and take necessary corrective action </li></ul>
  13. 13. PRICING PROBLEMS <ul><li>Multi-national pricing </li></ul><ul><li>Managing foreign currency / floating exchange rates </li></ul><ul><li>Obtaining payment in high risk markets </li></ul><ul><li>Administrative problems of cross-border goods transfer </li></ul>
  14. 14. THREE TYPES OF GREY MARKET SOURCE: Assmus and Weiss (1995)
  15. 15. PARALLEL IMPORTING OR GREY MARKETING <ul><li>Conditions: </li></ul><ul><ul><li>Product priced lower in home market </li></ul></ul><ul><ul><li>Products available internationally </li></ul></ul><ul><ul><li>Low trade barriers </li></ul></ul><ul><ul><li>Large price differentials </li></ul></ul>
  16. 16. DEFENCE AGAINST GREY MARKETING <ul><li>Seek government intervention or legal protection </li></ul><ul><li>Refusal to issue warranties in certain markets </li></ul><ul><li>Buying out grey marketer </li></ul><ul><li>Price coordination strategies </li></ul><ul><ul><li>Economic measures </li></ul></ul><ul><ul><li>Centralisation </li></ul></ul><ul><ul><li>Formalisation </li></ul></ul><ul><ul><li>Informal Co-ordination </li></ul></ul>
  17. 17. A FRAMEWORK FOR SELECTING A CO-ORDINATION METHOD Source: Assmus & Wiess (1995)
  18. 18. TRANSFER PRICING <ul><li>Bases of Transfer: </li></ul><ul><ul><li>At cost </li></ul></ul><ul><ul><li>At arm’s’ length </li></ul></ul><ul><ul><li>At cost plus </li></ul></ul><ul><li>Strategic Use: </li></ul><ul><ul><li>Create and maintain barriers to entry </li></ul></ul><ul><ul><li>Avoid domestic tax liabilities </li></ul></ul><ul><ul><li>Avoid foreign tax </li></ul></ul><ul><ul><li>Manage levels of market involvement </li></ul></ul>
  19. 19. CURRENCY OF PRICING <ul><li>Benefits of quoting in a foreign currency </li></ul><ul><ul><li>provide access to finance abroad </li></ul></ul><ul><ul><ul><li>At lower interest rates </li></ul></ul></ul><ul><ul><li>good currency management </li></ul></ul><ul><ul><ul><li>Leading to potential of gaining additional profit </li></ul></ul></ul><ul><ul><li>responding to condition of contract </li></ul></ul><ul><ul><li>customers prefer quotes in own currency </li></ul></ul><ul><ul><ul><li>Allowing competitive comparison </li></ul></ul></ul>
  20. 20. MANAGING CURRENCY FLUCTUATIONS Domestic Currency Weak <ul><li>Compete on price </li></ul><ul><li>Introduce new products with additional features </li></ul><ul><li>Source / manufacture in the domestic country </li></ul><ul><li>Fully exploit export opportunities </li></ul><ul><li>Obtain payment in cash </li></ul><ul><li>Use full cost approach for existing markets / marginal costs for new, more competitive, markets </li></ul><ul><li>Repatriate foreign earned income quickly </li></ul><ul><li>Reduce expenditure and buy services (advertising, transport, etc) locally </li></ul><ul><li>Minimise overseas borrowing </li></ul><ul><li>Invoice in domestic currency </li></ul>
  21. 21. MANAGING CURRENCY FLUCTUATIONS When Domestic Currency Strong <ul><li>Compete on non-price factors (quality, delivery, service) </li></ul><ul><li>Improve productivity and reduce costs </li></ul><ul><li>Prioritise strong currency countries for exports </li></ul><ul><li>Use counter-trade for weak currency countries </li></ul><ul><li>Reduce profit margins and use marginal costs for pricing </li></ul><ul><li>Keep the foreign earned income in the local country </li></ul><ul><li>Maximise expenditures in local country currency </li></ul><ul><li>Buy services abroad in local currencies </li></ul><ul><li>Borrow money for expansion in local markets </li></ul><ul><li>Invoice foreign customers in their own currency </li></ul>
  22. 22. TYPES OF COUNTER-TRADE <ul><li>Barter </li></ul><ul><li>Compensation trading </li></ul><ul><li>Counter-purchase </li></ul><ul><li>Offset </li></ul><ul><li>Switch deals </li></ul><ul><li>Cooperation agreements </li></ul>
  23. 23. COUNTER-TRADE Advantages <ul><li>New markets </li></ul><ul><li>Sell off surplus or poor quality products </li></ul><ul><li>Strengthens political ties </li></ul><ul><li>Entry to high risk areas </li></ul><ul><li>Circumvent government restrictions </li></ul>
  24. 24. COUNTER-TRADE Disadvantages and Limitations <ul><li>Lack of flexibility </li></ul><ul><li>Exchange products difficult to sell </li></ul><ul><li>Difficulties in locating / organising counter-trade products </li></ul><ul><li>No guide market prices </li></ul><ul><li>Difficult profit evaluation </li></ul><ul><li>May create new competition </li></ul>
  25. 25. THE EXPORT ORDER PROCESS

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