Download - Lecture7 Pricing
INTERNATIONAL MARKETING:
Lecture 7
International pricing decisions
Gregor Pfajfar
March 2009
Different prices in different distribution channels
in €
Source: Presentation Zinocker, Simon, Kucher & Partner, dec.2006.
Big mac indexHaving trouble keeping track of currency
fluctuations?
The Economist tracks the average price of a McDonald’s Big Mac across the globe to give you a feel for whether a currency is under- or over-valued.
The pivotal role of price in marketing exchanges
Money
Time
Cognitive activity
Behavior effort
Production
Promotion
Distribution
Marketing research
Value Profit
+ +
= =Price willing to pay Price willing to sell
Marketing exchange
CUSTOMER PRODUCER
Case study: Harley Davidson
1. Describe the HD’s general pricing strategy. What does the company’s positioning have to do with its pricing strategy?
2. Should Harley alter its price, given the strong price pressures from rivals?
3. What should HD do to improve its market share in Europe?
Strategic pricing decisions
PPricingricing
Only area of global marketing mix where policy can be changed rapidly without large direct cost implications
Decisions in global markets are affected by complexity of influential factors
International pricing framework
Firm-level factorsEnvironmental
factors
Product factors Market factors
Firm performance
Other
elementsPricing strategies
Terms
Source: Hollensen, Global marketing, 4e, 2008.
Internal factors affecting international pricing decisions
• Firm-level factors• Corporate and
marketing objectives• Competitive strategy• Firm positioning• Product development• Production location• Market entry modes
• Product factors• Stage in PLC• Place in product line• Most important
product features• Product positioning• Product cost
structure
External factors affecting international pricing decisions
• Environmental factors• Government
influences and constraints
• Inflation• Currency fluctuations• Business cycle stage
• Market factors• Customers’
perceptions• Customers’ ability to
pay• Nature of competition• Competitors’
objectives, strategies, strengths and weaknesses
• Grey market appeal
International price corridor
Source: Hollensen, Global marketing, 4e, 2008.
Special issues in international pricing
• Price escalation• Skimming• Market pricing• Penetration pricing• Experience curve
pricing• Bundle pricing• Transfer pricing
• What influences the height of international prices?• Currency• International
commercial terms• Financial terms• Terms of payment
Delivery terms – INCOTERMS 2000
1. E group: EXW (Ex-works)
2. F group: FCA (Free carrier), FAS (Free alongside ship), FOB (Free on board)
transfer of costs and risk
seller buyer
transfer of costs and risk
seller buyer
Delivery terms – INCOTERMS 2000
3. C group: CFR (Cost and freight), CIF (Cost, insurance, and freight), CPT (Carriage paid to), CIP (Carriage and insurance paid to)
4. D group: DAF (Delivered at frontier), DES (Delivered ex-ship), DEQ (Delivered ex-quay), DDU (Delivered duty unpaid), DDP (Delivered duty paid)
transfer of costs
transfer of risk
seller buyer
transfer of costs and risk
seller buyer
Different terms of payment
Source: Hollensen, Global marketing, 4e, 2008.
The process for handling letters of credit
Source: Hollensen, Global marketing, 4e, 2008.
Export financing
• Commercial banks• Export credit
insurance• Factoring• Forfeiting• Bonding
• Leasing• Counter-trade
• Barter• Compensation
deal• Buy-back
agreement
Strategic alternatives in international pricing
1. Standardization
2. Differentiation
1. Skimming
2. Penetration
Structural factors of standardized versus differentiated pricing
Source: Hollensen, Global marketing, 4e, 2008.
Case study: Gillette
1. Evaluate the price-level of Gillette’s Fusion
2. Discuss whether it is possible for Gillette to standardize pricing across borders for their new 5-blade, Fusion.
3. Which factors would favour price standardization and which factors would favour price differentiation?
A taxonomy of international pricing practices
3 Multilocal
price setter
4 Global
price leader
1 Local
price follower
2 Global
price follower
High
Low
Pre
par
ed
nes
s f
or
inte
rna
tio
na
liza
tio
n
Multilocal markets Global markets
Industry globalism
Source: Hollensen, Global marketing, 4e, 2008.
Initiating and responding to price changes
• Initiating price cuts implies the risk of…
• Low quality trap
• Fragile market share trap
• Shallow pocket trap
• Initiating price increases
• Cost inflation
• Anticipatory pricing
• Overdemand
• Delayed quotation pricing
• Escalator clauses
• Unbundling
• Reduction of discounts
• Reactions to competitors’ price changes
• Maintain price
• Maintain price and add value
• Reduce price
• Increase price and improve quality
• Launch a low-price fighter line
How to fight a price war?
NONPRICE RESPONSES
Reveal your strategic capabilities and intentions
Offer to match competitors’ prices, offer everyday low pricing, or reveal your cost advantage.
Compete on quality Increase product differentiation by adding features to a product, or build awareness of existing features and their benefits. Emphasize the performance risks in low-priced options.
Co-opt contributors Form strategic partnerships by offering cooperative or exclusive deals with suppliers, resellers, or providers of related services.
PRICE RESPONSES
Use complex price actions Offer bundled prices, two-part pricing, quantity discounts, price promotions, or loyalty programs for products.
Introduce new products Introduce flanking brands that compete in customer segments that are being challenged by competitors.
Deploy simple price actions
Adjust the product’s regular price in response to a competitor’s price change or another potential entry into the market.
Source: Rao, Bergen, Davis (2000). How to fight a price war, Harvard business review, pp. 107-116.