global marketing 11
TRANSCRIPT
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Pricing Decisions
o a ar e ng
(Global Edition)Chapter 11
1
Chapter topics:
Pricing concepts r c ng o ec vesPrice setting
Environmental issuesPricing policy alternativesGray market goods
DumpingTransfer pricingCountertrade
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Law of One PriceAll customers in the
National markets
market get the bestproduct for the best
Competition
Global markets
Fra mented beer amon s
Crude oilmarket: Budweiser, theleading global brand,
Integrated circuits
market share
Heinekens price in Japan is a function of
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compe on w o er mpor s an enational producers.
Low introductory interest rateson credit cards with high
Profit MaximizationTarget Return
Profitability Objectives
Compaqs low-priced PCsincrease market share and sales
Sales MaximizationMarket Share
Volume Objectives
Price wars among major airlinesValue PricingCompetition
o services
High-priced luxury autos suchas Ferrari and watches by Rolex
LifestyleImage
Prestige Objectives
High prices for tobacco andalcohol to reduce consumption
Profit MaximizationNot-for-Profit
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Market IncentivesMarket Suppression
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Global Pricing Objectivesand Strategies
The global manager must develop systems and
olicies that address
Price Floor: minimum price
Optimum Price: function of demand
Must be consistent with global opportunities and
constraints Be aware of price transparency created by Euro
zone and Internet
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Global Pricing Objectivesand Strategies
Managers must determine the objectives fort e pr c ng
Unit Sales
Market Share
Return on Investment
hey must then develop strategies to achieve
those objectives Penetration Pricing
Market Skimming
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Select pricing objective(s)
Determine demand
Estimate costs
Analyze competitors pricing
Assess regulatory factors
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Se ect price &price-adaptation strategies
Target-return pricing
Perceived-valuepricing
Value pricing
Goin -rate ricin
Auction-type pricing
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Market Skimming andFinancial Objectives
Market Skimmin Charging a premium price
Ma occur at theintroduction stage ofproduct life cycle
Luxury goods marketers
use price to differentiatepro uc s
LVMH, Mercedes-Benz
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Penetration Pricing andNon-Financial Objectives
Charging a low price in order
to penetrate market quickly ppropr ate to saturate mar et
prior to imitation bycompetitors
Packaged food product makers,
with products that do notstrategy to get marketsaturation before competitors
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1979 Sony Walkman
Companion Products orRazors and Blades Pricing
Products whose sale isde endent u on the sale of
primary product Video games are dependent
console
If you make money on thea es, you can g ve away
the razors
subsidize the phone andmake money on calling plans
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- ox ame ys em an por sGame
Determine the segment(s) to be targeted, as well asthe prices that customers in the segment will be
w ng to pay.
the companys future profitability.
Allocate the target costs to the products variousfunctions. Calculate the gap between the target cost
.
Obe the cardinal rule: If the desi n team cant meet
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the targets, the product should not be launched.
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Pricing Goods forCross Border Shipment
1. Does the price reflect the products quality?
2. Is the price competitive, given local market conditions?. , ,or some other pricing objective?
4. What type of discount (trade, cash, quantity) and allowance(advertising, trade-off) should the firm offer its internationalcustomers?
.6. What pricing options are available if the firms costs increase
or decrease? Is demand in the international market elastic orinelastic?
7. Are the firms prices likely to be viewed by the host-countryovernment as reasonable or ex loitative?
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8. Do the foreign countrys dumping laws pose a problem?
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Cost-based pricing is based on ananalysis of internal and external cost
principles use the full absorption cost
Per-unit product costs are the sum of allpast or current direct and indirectmanufacturing and overhead costs
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Rigid cost-plus pricingmeans that
to the eight pricing considerations
Flexible cost-pluspricingensures t atprices are competitive
in the context o theparticular market
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$1=101 $1=130 $1=113 $1=91
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Defined as a persistent upward
chan e in rice levels
Can be caused by an increase
Can be caused by currency
Essential requirement for pricingis the maintenance of operating
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Government Controls,Subsidies, and Regulations
The types of policies Foreign governments
affect pricing decisions require funds to be-
Dumping legislation
accounts for a long time
restrict rofits taken out maintenance legislation
of the country and limit
funds paid for imported
General reviews of pricelevels
materia
Restrict price competition
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If competitors do not adjust their prices
in response to rising costs, it is difficultto ad ust our ricin to maintainoperating margins
sourcing in a lower-cost country, it may
be necessary to cut prices to staycom etitive
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Using Sourcing as aStrategic Pricing Tool
Marketers of domestically manufactured
n s e pro uc s may move o o s oresourcing of certain components to keep costsown an pr ces compe ve
China is the worlds workshop
Rationalize the distribution system: Toys R Usb asses la ers of intermediaries in Ja an to
operate US-style warehouse stores
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Global Pricing: PolicyAlternatives
Extension or Ethnocentric
ap a on or o ycen r c
Geocentric
Mercedes moved beyond
began offering Lexus Mercedes
value at $20K less. In 1993,Merce es ooste emp oyee
productivity, increased low-costsuppliers and invested in
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production facilities in the US tomove to better pricing.
Extension or EthnocentricPricing
Ethnocentric Per-unit price of an item is the same,
is located
mporter must a sor re g t an
import duties Fails to respond to each national market
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Adaptation or PolycentricPricing
Permits affiliatemana ers or inde endent
distributors to establishrice as the feel is most
desirable in theircircumstances
Sensitive to marketAIDS drugs meant for Africa,
potential for gray are smuggled into Europe
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Intermediate course of
ac on Recognizes that several
factors are relevant toricin decision
Local costs
Competition
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Trademarked products are exported from one
country to another where they are sold byunauthorized persons or organizations
Occurs w en pro uct is inshort supply, when producersuse s mm ng strateg es n
some markets, and whengoo s are su ect tosubstantial mark-ups
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Dilution of exclusivity Free riding
relationships
pricing schemes epu a on an egaliability
of date leads to
lawsuits
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Sale of an imported product at a price lower
market or country of origin
are priced at either levels that represent less
margin or at levels below those prevailing inthe roducin countries
To prove, both price discrimination and injurymust be shown
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In 2003, the Southern Shrimp
countries were dumpingshrim in the US
The International TradeCommission a reed andallowed the US Dept. ofCommerce to raise duty rates
on shrimp from India, China,Brazil, Vietnam, Ecuador, and
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a an
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Representatives of two or more companies
secretl set similar rices for their roducts Illegal act because it is anti-competitive
Horizontal rice fixin occurs whencompetitors within an industry that make andmarket the same product conspire to keepprices high
Vertical price fixing occurs when amanufacture conspires withwholesalers/retailers to ensure certain retail
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pr ces are ma n a ne
Pricing of goods, services, and intangibleproperty oug t an so y operat ng un tsor divisions of a company doing business withan a ate n anot er ur s ct on
Intra-corporate exchanges
Cost-based transfer pricing
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Negotiated transfer pricing
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Countertrade occurs when payment is madein some form other than money
Options
Counterpurchase orarallel tradin
Offset
Com ensation tradin or
buyback
Switch tradin
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e eas comp ex an o es ormof bilateral, non-monetarycountertrade
services between two parties
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