international pricing ppt
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GLOBAL PRICINGSUBMITTED BY:
Manish Sabharwal (640)Tarun Tahiliani (627)
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 company’s revenue. It is important because:
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
4 C’s are the main drivers of global pricing strategies of any company operating internationally: COMPANY, CUSTOMER, COMPETITION and CHANNELS
Company Company includes the goals and costs as the
major factor of global pricing strategies.
Major Goals Include Growth Maximization/revenue maximization Market penetrationProjection 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.
CostsCosts 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 costsExport Pricing policies: Cost-Plus Pricing: adds international costs and a
mark-up to the domestic manufacturing cost. Dynamic Incremental Pricing: only variable costs and
a portion of the overhead load (incremental costs) should be recuperated. Exporting-related incremental costs (manufacturing costs, shipping expenses, insurance, and overseas promotional costs).
Customer If costs set the floor for pricing , consumer willingness to pay
sets a ceiling to the price. Consumer’s role in international pricing is derived by these reasons:
Buying powerTaste Habits & Spending patternsAvailability of substitutes
Option to tackle customers issue:DownsizingNiche player targeting upper end Portfolio of productsSell older version at low prices Example: Proctor & Gamble downsized the packet size of Ariel in
Egypt thereby lowering the cash outlay for ordinary consumers.
CompetitionCompetition 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
ownedPosition of company in the competition:
Price leaders or price takersKnockoff items / counterfeit products:
Imitation products offered for sale Smuggled goods.
ChannelsDistribution channels determine the pricing in different ways depending upon:
Length of channels: producer to consumer in how many steps Balance of power between manufacturer and
retailersUnauthorized distribution channels in the gray
markets
For 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.
Govt. policiesGovernment policies can have a direct or indirect
impact on the pricing policies. Factors that have a direct impact are:
Sales tax ratesTariffsPrice controlsPolicy regarding Floor price/Ceiling price
Factors that have an indirect impact on pricing are:Interest ratesCurrency volatilityInflation
Concept of Price escalation Exporting involves more steps and substantially
higher risks than domestic marketing.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.
Price escalation raises two pressing issues: Sticker shock: willingness of foreign customers
to pay the inflated price Competitiveness: inflated price making the
product less competitive
Managing price escalationRearrange the distribution channel: length of the
channel, or number of layers between manufacturer and end-user. Example: US firms in Japan
Eliminate costly features (or make them optional): core product + optional feature available at extra cost
Downsize the product
Assemble or manufacture the product in foreign markets
Adapt the product to escape tariffs or tax levies: Range Rover in US.
Pricing in Inflationary Environments There are several alternative ways to safeguard
against inflation Modify components, ingredients, parts and/or –
packaging materials Source materials form low-cost suppliers Shorten credit terms Include escalator clauses in long-term contracts Quote Prices in a stable currency Pursue rapid inventory turnovers Draw lessons from other countries
Global Pricing and Currency Movements Given the sometimes dramatic exchange rate
movements, setting prices in a floating exchange rate world poses a tremendous challenge.
Two major managerial pricing issues result from currency movements:How much of an exchange rate gain (loss) should be passed through our customers?
Ex: Customer’s price sensitivity, the amount of competition in the export marketIn what currency should we quote our prices?
Depends on the balance of power between the supplier and the customer
Some companies adopt a single currency
Transfer pricing It refers to the setting, analysis, documentation,
and adjustment of charges made between related parties for good, services, or use of property (including intangible property).
Following criteria should be considered while making transfer pricing decisions:
Tax regimes Local Market conditions Market Imperfections Joint-venture partner Morale of local country managers
Anti dumping regulationDumping: imports are being sold at an “unfair”price
Protectionism
To minimize risk exposure to antidumping actions, exporters might pursue any of these strategies:
Trading-up (move away from 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
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
In deciding how much coordination, several considerations matter:
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.
Nature of Channels: distribution channels can be viewed as intermediate customers.
Nature of competition: Global competition demands a cohesive strategic approach for the entire marketing mix strategy, including pricing.
Market integration
Internal organization
Government regulation
Countertrade Countertrade is an umbrella term used to describe
unconventional trade-financing transactions that involve some form of noncash compensation.
Types:Barter: Exchange of goods or servicesSwitch trading: Practice in which one company sells to another
its obligation to make a purchase in a given countryCounter purchase: Sale of goods and services to a country by a
company that promises to make a future purchase of a specific product from the country
Buyback: occurs when a firm builds a plant in a country - or supplies technology, equipment, training, or other services to the country and agrees to take a certain percentage of the plant's output as partial payment for the contract
Offset: Agreement that a company will offset a hard - currency purchase of an unspecified product from that nation in the future
Motives Behind Countertrade Gain access to new or difficult markets Overcome exchange rate controls or lack of hard
currency Overcome low country credit worthiness Increase sales volume Generate long-term customer goodwill
Shortcomings of Countertrade No in-house use for goods offered by customers Timely and costly negotiations Uncertainty and lack of information on future
prices Transaction costs
CASE 1: McDonald’s Pricing Strategy in India
McDonald's India is a joint-venture company managed by Indians. McDonald’s India, a subsidiary of McDonald’s USA, has expanded its presence in India via 2 joint venture companies – Connaught Plaza restaurants and Hard castle restaurants.
McDonald's opened its doors in India in Vasant Vihar, New Delhi in October 1996
Global Strategy:Customer driven, goal orientedAchieving sustainable, profitable growthDesigned to increase restaurant visits and growBrand loyalty among new & existing customers Further build financial strength
Strategy in IndiaMuch higher degree of adaptability 40% Vegetarians –Vegetarian selections to suit Indian
taste Maharaja Mac replaced Big Mac, Chicken Patty instead
of Beef Respect for local culture- Special Indian menu, No beef
or pork items in India McAloo burger, Veg Salad Sandwich, McMasala & Veg
SaucesRe-formulated own products using spices favoured by
Indians Only vegetable oil used as a cooking mediumCommon Menu- Chicken Nuggets, Fillet-O- Fish, fries,
sodas, shakes
A very popular punch line of Mcdonalds-“Aap ke zamane mein, baap ke zamane ka daam”.
The main reason of this price strategy was to attract the middle class & the lower class of people in India. After this not only the upper class prefers going there but all class of people go there.
Value Pricing: Happy meal – small burger ,fries ,coke + toy Medium Meal Combo- burger ,fries, coke-veg
Rs:75 ,Maharaja Mac Meal Rs: 95 Family Dines under Rs: 300 Price lower than Pak ,Srilanka ,50% lower than U.S.
Break even in 2008 Accumulated losses in initial years but that did not
stop the value pricing strategy so as to reinforce the image of value for money fast food. Continued brand building exercise with full vigour
In September 2009, McDonald’s announced reduction in prices by almost 25% for its lunch and dinner menus. Prices for its extra-value meals like McVeggie and McChicken were reduced to Rs. 85 and 95 respectively from Rs. 110 and 120 respectively. Typically a meal consists of burger, French fries and soft drinks. This strategy was surprising as it came at a time when food prices were increasing by the day.
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