Unit 4

Pricing and distribution

PRICING
y THE UNIQUENESS OF PRICE IN MARKETING MIX IS

THAT IT IS THE ONLY ELEMENT THAT GENERATES REVENUE, ALL OTHER ELEMENTS INCUR COSTS. y PREDATORY PRICING IS A PRACTICE OF TEMPORARILY SELLING AT A PRICE BELOW COSTS WITH THE INTENTION OF DRIVING OUT EXISTING COMPETITORS OR WARDING OFF NEW COMPETITORS. ITS BANNED AS PER MRTP ACT.

TYPES OF COSTS IN EXPORT MARKETING

COST

PRODUCTIO N COSTS

SELLING & DISTRIBUTION COSTS

FIXED & VARIABLE COSTS

FACTORS AFFECTING PRICING

y INTERNATIONAL MARKETING OBJECTIVES y COSTS y COMPETITION y PRODUCT DIFFERENTIATION y EXCHANGE RATE y MARKET CHARACTERISTICS y GOVERNMENT FACTOR

PRICING METHODS OR APPROACHES

y COST BASED y MARKET ORIENTED y FOLLOWING COMPETITORS y NEGOTIATED y CUSTOMER DETERMINED PRICE y BREAK EVEN PRICE y MARGINAL COST PRICING y CREATIVE

TRANSFER PRICING
y OR INTRA CO. PRICING REFERS TO PRICING OF

GOODS TRANSFERRED FROM OPERATIONS OR SALES UNIT IN 1 COUNTRY TO THE CO.S UNIT ELSE WHERE. y ITS OBJECTIVES ARE: TO MAXIMISE THE TOTAL PROFITS OF THE CO. TO FACILITATE PARENT CO. CONTROL.

METHODS OF TRANSFER PRICING

DIRECT MANUFACTURING COSTS ONLY 2. (1) + A MARK UP TO COVER THE ADDL. EXP. 3. MARKET BASED PRICING 4. ARMS LENGTH PRICE: REFLECTS THE PRICE THAT AN UNAFFILIATED TRADER WOULD AGREE FOR A PARTICULER TRANSACTION.
1.

DUMPING
y REFERS TO THE PRACTICE OF CHARGING A VERY

LOW PRICE FOR IMPORTED GOODS TO THE DETRIMENT OF THE SAME PRODUCT MANUFACTURED DOMESTICALLY. y EG: DUMPING OF CHEAP CHINEESE TEXTILES AND ALKALINE BATTERIES IN INDIAN MARKET IN RECENT TIMES.

TYPES OF DUMPING
y SPORADIC DUMPING : REFERS TO SELLING OUT THE

EXCESS STOCK THAT MAY ARISE OCCASIONALLY. y PREDATORY OR INTERMITTENT DUMPING :

International pricing framework

STEPS IN PRICING
DEFINING THE PRICING OBJECTIVE ANALYSING THE MARKET CHARACTERISTICS CALCULATING COSTS CALCULATING VALUE OF INCENTIVES

DETERMINING EXPORT PRICE

Global Pricing Strategies - Four Steps

1 Determine the price elasticity of demand (Inflexible demand will allow for a higher price) 2 Estimate fixed and variable manufacturing costs (product adaptation costs must be calculated) 3 Identify all costs associated with the marketing programme 4 Select the price that offers the highest contribution margin Warren J. Keegan (1995)

Pricing Strategies

yMarket skimming yMarket penetration yMarket holding yCost-plus pricing

Market Holding
y Maintain their share of the market y Currency fluctuations often trigger price adjustments y Price adjustments can mean lower, or no profit margin y strong home currency could mean manufacturing/licensing

abroad

Cost-plus
y Adds-up all cost of production (and shipping) y Easy to make quotes y Ignores demand and competitive pricing in target market y Consumer and competitor value issues must always

considered in a rational pricing strategy

RETROGRADE PRICING
y THE ESTIMATES OF THE COST, AND THE VALUE OF

THE INCENTIVES AND THE EXPORT OBJECTIVES ENABLE THE CO. TO ESTIMATE THE MIN.AMT. IT MUST REALISE SO AS TO MAKE THE EXPORT FEASIBLE. FOR THIS THE CO. WILL HAVE TO WORK BACKWARDS FROM THE MARKET PRICE. THIS IS CALLED RETROGRADE PRICING.

Problems of multinational pricing

y Co-ordination across various markets? y Do we maintain a uniform pricing policy

across markets? y How to transfer price between and across markets? E.g. Sandvik (Sweden) y Parallel imports or Grey markets?

Problems with foreign currency and economic conditions

y Which currency for pricing in

international markets? y How to deal with fluctuating exchange rates? y Strategies for high inflation rates?

Grey Markets
y Products must be available internationally (as products are

standardised in global markets) y Low trade barriers (tariffs, legal restrictions, transport costs) y Price differentials must be great enough (so that grey marketers can make a profit)
Duhan and Sheffet (1988)

INCOTERMS AND DOCUMENTS REQUIRED

INCO TERMS
y EXW EX WORKS y FCA FREE CARRIER

DOCUMENTS REQUIRED
y COMMERCIAL INVOICE & y

y FAS FREE ALONGSIDE

y y y

SHIP y FOB FREE ON BOARD y CFR COST & FREIGHT y CIF COST,

BUYERS RECEIPT COMMERCIAL INVOICE, DOC. EVIDENCING DELIVERY TO THE CARRIER,EXPORT LICENSE -DO-DO -DOALL THE ABOVE AND INSURANCE POLICY

INCOTERMS AND DOCUMENTS REQUIRED

INCO TERMS
y CPT CARRIAGE PAID

DOCUMENTS REQUIRED
y COMMERCIAL INVOICE

TO
y CIP CARRIAGE AND

INSURANCE PAID TO

y DAF DELIVERD AT

TRANSPORT DOC. & EXPORT LICENSE y COMMERCIAL INVOICE, TRANSPORT DOC. EVIDENCING CARRIAGE OF GOODS,EXPORT LICENSE, INSURANCE POLICY y COMMERCIAL INVOICE,CUSTOMARY TRANSPORT DOC.EXPORT LICENSE

FRONTIER

INCOTERMS AND DOCUMENTS REQUIRED

INCO TERMS
y DES DELIVERED EX

DOCUMENTS REQUIRED
y COMMERCIAL

SHIP
y DDU DELIVERED

INVOICE, DELIVERY ORDER y -DOy -DO- AND IMPORT

DUTY UNPAID y DEQ DELIVERED EX QUAY y DDP DELIVERED DUTY UNPAID

LICENSE
y -DO-

INFORMATION REQUIREMENTS
y CONSIDERATIONS IN EXPORT RPICING ARE:

COSTS : FACTORY COSTS, SELLING AND DISTRIBUTION, COST FOR MARKETING SUPPORT AND DEVELOPMENT,ADMINISTRATIVE COSTS 2. FOREIGN MARKETS : SIZE AND NATURE OF DEMAND, EXTENT OF COMPETITION 3. PRICES
1.

CHECK LIST OF INFO. REQUIRED

y INFO. ON TOTAL MARKET y INFO. ON COMPETITION y INFO. ON PRICES y INFO. ON GOVT POLICIES y INFO. ON PRODUCTION AND COST y INFO. ON REVENUE AND PROFIT

INTERNATIONAL CHANNEL SYSTEMS

EXPORT

DIRECT

INDIRECT

DOMESTIC OVERSEAS INTERMEDIARIES FOREIGN INTERMEDIARIES

y INDIRECT CHANNELS AT THE DOMESTIC LEVEL

INCLUDE: MARKETING MIDDILE MEN CO OPERATIVE ORGANISATIONS FOREIGN INTERMEDIARIES INCLUDE: IMPORTERS,DISTRIBUTORS,WHOLESALERS, RETAILERS,MULTIPLE CHANNELS, GOVT DEPT.S, STATE BUYING ORGN, JOINT VENTURES,LICENSEES OR FRANCHISEESS

FACTORS INFLUENCING CHANNEL SYS.

y PRODUCT y MARKET AND CUSTOMER y MIDDILE MEN y CO. OBJECTIVES y COMPETITORS

ISSUES IN DISTRIBUTION
y COMPARISON OF MODE3S OF TRANSPORTATION y CARGO OR TRANSPORTATION INSURANCE y PACKING y FREIGHT FORWARDER y DOCUMENTATION

Success Strategies in Channel Management

Power Point Presentations by Sections

30

1. Competition and Cooperation The basic assumption in Strategy is competition. Competitive behaviour sees organisations taking an adversarial role in all exchange situations

2. Monopolistic/Oligopolistic Market Behaviour The problem with building a defensive wall is that one loses the benefits of competition improved performance.

3. Co-operative Market Behaviour Co-operative behaviour is characterised by organisations exhibiting behaviour that focuses primarily on cooperation with market supporters (strategic relationship building to leverage collaborative efforts.

4. Syncretic Market Behaviour The attempt to achieve a dynamic balance between positives to be found in both competitive and cooperative strategies

Competition
31 Sec1-1.ppt

Marketing Channels Creating Customer Value via Channels of Distribution\

Components of Customer Value form, place, possession, and time

Marketing Channels: Structure and Functions

Customer Relationship Management Three types of channel relationships exist: Supplier Relationships. Customer Relationships. Lateral Relationships.

SIFTing

Marketing Channels
Sec2.ppt

Demand-Side Factors Facilitation of Search, Adjustment of Assortment Discrepancy, Routinisation of Transactions Reduction in Number of Contacts.

Marketing Channel Membership

32

What Is The Work Of The Marketing Channel?

Logistics and Supply Chain Management Supply Chain Management

Efficient Consumer Response Changes in Merchandising

The Importance of Logistics in Channels

Inventory Management in Marketing Channels

Inventory Holding Costs

Physical Efficiency versus Market Responsiveness

Reducing Inventory Pseudo Inventory Reduction Real Inventory Reduction

Sec4-1.ppt

Category Management Fulfilment and Transportation Critical Supply Chain Elements Documentation
33

Logistics and Supply Chain Management Sec4.ppt

Who Should Be In The Channel?

Should Intermediaries Be Used at All? What Types of Intermediaries Should Be Used?

Channel Structure and Membership Issues 8 - Selection Criteria.doc The Impact Of Structural Decisions On Channel Coordination

Flows to Be Performed, Appropriate Intermediary Choices

A Single Channel or Multiple Distribution?

Which Specific Intermediaries Should Be Used? How Many Channel Members Should There Be At A Given Level of the Channel?

34

Distributor and Agent Selection Criteria

Recruiting and Screening New Prospects

Business Policies that Bond Your Channel to You Preparing a Business Policy Statement

Recruiting as a Continuous Process.

Screening
Credit Personality

Channel Candidate Inducements

Business and Operational Criteria

Final Selection Criteria SPEAR

35

Distributor and Agent Selection Criteria Sec9.ppt

Forms of Channel Conflict Managing Conflict to Increase Channel Coordination Managing Conflict to Increase Channel Coordination
Sec16.ppt

Assessing the Degree and Nature of Channel Conflict

Measuring Conflict Styles of Conflict Resolution

Accommodation Repeated Compromise Competition Collaboration

When Conflict Is Desirable When Is Conflict Functional?

Major Sources of Conflict Conflict Resolution Strategies

Co-optation Third-Party Mechanisms Building Relational Norms Information Exchange 36 Competing Goals Differing Perceptions of Reality

Fuelling Conflict

Clashes Over Domains Multiple Channels

Performance Measurement

Channel Member Evaluation

A Framework for Developing Measures of Channel Member Performance

Performance Measurement
Sec17.ppt

Direct and Indirect Measures

Financial Measures

37

Legal Constraints on Marketing Channel Policies

Market Coverage Policies Pricing Policies Discounts Legal Issues

Sec19.ppt

Product Line Policies Promotional Allowances and Services Product Policies

Exclusive Dealing

38

Selection and Termination Policies International Variations

Selection and Termination Policies

Sec21.ppt

Terminating Agents and Distributors

Termination as Strategy

Common Ground Rules Confusion Over Terms

39

Pricing Policy and Methods

Price Cutting Buyer Evaluation

Pricing in Channels
Sec21.ppt

Eight Stages In Establishing Prices

Segmented Pricing

Price and Value

Common Pricing and Methods Discounts and Allowances
Competition-Based Methods Profit-Based Methods Competition Oriented Pricing

40

Vertical Integration: Owning the Channel Make or Buy: A Critical Determinant of Company Competencies Degrees of Vertical Integration Important forms of companyspecific capabilities Deciding When to Vertically Integrate Forward Vertical Integration: Owning the Channel
Sec22.ppt

Outsourcing as the Starting Point Vertical Integration Forward When Competition Is Low Six Reasons to Outsource Distribution

41

Channels for Services Direct Delivery of Value

Delivery of Value via Intermediaries

Independent Service Channels Innovations in Methods of Distributing Services

Channels for Services
42 Sec6.ppt

INTERNATIONAL LOGISTICS
y IT IS DEFINED AS THE DESIGNING AND MANAGING OF A SYS

THAT CONTRACTS THE FLOW OF MATERIALS INTO, THROUGH AND OUT OF THE INTERNATIONAL CORPORATION.
y COMPONENTS OF LOGISTICS MANAGEMENT :

FIXED FACILITIES LOCATION TRANSPORTATION INVENTORY MANAGEMENT ORDER PROCESSING MATERIALS HANDLING AND WARE HOUSING