Global Marketing Management

Global Pricing
 8 Pricing Considerations

• Does the price reflect • Differ by market

the product’s quality? segment
• Is it competitive? • Options in case of cost
• Penetration, increase or decrease
skimming, or other • Viewed as exploitative
• Discounts & • Dumpling laws
allowances
 Environmental Influences on Pricing
Decisions.
• Currency Fluctuations
– Two positions:
• Fix prices in country target markets
• Fix prices in home-country currency
– Pricing should be consistent with the company`s
marketing strategy
Environmental Influences on Pricing
Decisions

• Exchange Rate Clause

– Allows the buyer & selller to agree to supply &
purchase at fixed prices in each company’s
national currency
– Designed to protect bother from unforeseen
large swings in currencies
 Environmental Influences on Price
Decisions

• Inflationary Environment
– Require periodic adjustments due to rising costs
– Must maintain operating profits
– LIFO – last in – first out is more appropriate
 Environmental Influences on Pricing
Decisions
• Government Controls & Subsidies
– In countries with severe financial difficulties, governments
may restrict price increases or prescribe fixed prices
• Competitive Behaviour
– Pricing decisions are also dependent on the nature of demand
and competitive action
 Market Skimming

• Deliberate attempt to reach a segment that is

willing to pay a premium price
• Often used in introductory phase of product
life cycle
• Goal is to maximize revenue on limited
volume & reinforce customer’s perception
of high product value
 Penetration Pricing
• Uses price as a competitive weapon to gain
market position
• Practiced by many companies in Pacific Rim
• Means that the product may be sold at a loss for a
certain time to gain market share
• Companies new to exporting cannot absorb such
losses
 Market Holding

• Dictates that source-country currency

appreciation will not be automatically
passed on in the form of higher prices
• May accept lower margins
• May have to shift production to other
countries or licensing
 Cost-Plus Price Escalation

• Adding up all the costs required to get the product to

where it is sold
• All costs incurred in getting a product to an international
market are taken into account
• Sometimes ignores competitive conditions
• Mostly used by companies new to foreign business
 Gray Goods

• Trademarked products that are exported

form one country to another where they are
sold by unauthorized persons or
organizations
• Bring a product produced in one country
into another in competition with authorized
importers – parallel importing
 Dumping

• A company exports a product at a price lower than the

price it normally charges in its own home market
• Dumping is an important global pricing issue, because it
is sometimes regarded as unfair competition
• Organisations like the WTO or OECD have issued
guidelines how to treat these problematic situations
 Transfer Pricing

• Pricing transactions between buyers and sellers that

belong to the same corporation
• The approach used will vary with the nature of the firm:
– Cost-Based Transfer Pricing
– Market-Based Transfer Pricing
– Negotiated Transfer Pricing
 Tax Regulations & Transfer Prices

• Companies sometimes use transfer prices to shift profits

from high-tax to low-tax countries
• The principle of arm`s length is a way of establishing a
transfer price between company units. The price shall
amount to what two independent, unrelated entities
would negotiate
 3 Policy Alternatives

Extension/ethnocentric
– Price is the same around the world
– Importer absorbs freight & import duties
Adaptation/polycentric
Permits subsidiary to establish price
Invention/geocentric
Strikes and intermediate position
 Summary

Different approaches to price setting

 Market Skimming
 Penetration
 Market Holding
 Cost Plus Price Escalation

Gray Market: Unauthorized distributors

Dumping: selling products in international markets at
prices below those in the home country
Transfer Pricing: intracorporate exchanges