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Transcript
International Marketing 16th edition Philip R. Cateora, Mary C. Gilly, and John L. Graham McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Introduction 18 • Setting the right price for a product or service is the Key to success or failure • An offering’s price must reflect the quality and value the consumer perceives in the product • Globalization of world markets – Intensifies competition among multinational and home-based companies • The marketing manager’s responsibility – To set and control the actual price of goods in different markets in which different sets of variables are to be found Roy Philip 18-2 Overview 18 • Components of pricing as competitive tools in international marketing • The pricing pitfalls directly related to international marketing • How to control pricing in parallel imports or gray markets • Price escalation and how to minimize its effect • Countertrading and its place in international marketing practices • The mechanics of price quotations Roy Philip 18-3 Global Perspective – the Price War 18 • The battle between P&G and Kimberly-Clark is bringing Pampers and Huggies, respectively, to places they have never been, forcing down diaper prices worldwide, and expanding the global market for disposable diapers • P&G entered Brazil with Pampers Uni, a non-frill unisex diaper; Kimberly-Clark entered Brazil and imported Huggies “push girls” from Argentina, hurting P&G • P&G and Kimberly-Clark began a terrible price war that hurt both of them in the end Roy Philip 18-4 International Marketing 16th edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Pricing Policy Pricing Objectives 18 • Pricing as an active instrument of accomplishing marketing objectives – The company uses price to achieve a specific objective • Pricing as a static element in a business decision – Exports only excess inventory – Places a low priority on foreign business – Views its export sales as passive contributions to sales volume Roy Philip 18-6 Pricing Policy Parallel Imports 18 • Parallel imports – Develop when importers buy products from distributors in one country and sell them in another to distributors who are not part of the manufacturer’s regular distribution system • Occur whenever price differences are greater . than cost of transportation between two markets • Major problem for pharmaceutical companies • Exclusive distribution Roy Philip 18-7 How Gray-Market Goods End Up in U.S. Stores 18 Exhibit 18.1 Roy Philip 18-8 Approaches to International Pricing 18 • Company policy relates to net price received – Control over end prices – Control over net prices • Cost and market considerations • Employ pricing as part of strategic mix – Market-oriented pricing factors Roy Philip 18-9 International Marketing 16th edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Full-Cost Versus Variable-Cost Pricing 18 • Variable-cost pricing – Firm is concerned only with the marginal or incremental cost of producing goods to be sold in overseas markets • Full-cost pricing – Companies insist that no unit of a similar product is different from any other unit in terms of cost – Each unit must bear full share of the total fixed and variable cost Roy Philip 18-11 Skimming Versus Penetration Pricing 18 • Skimming – Used by a company when the objective is to reach a segment of the market that is relatively price insensitive – Market is willing to pay a premium price for the value received • Penetration pricing policy – Used to stimulate market and sales growth by deliberately offering products at low prices Roy Philip 18-12 International Marketing 16th edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Price Escalation (1 of 3) 18 • Costs of exporting – Price escalation • Taxes, tariffs, and administrative costs – Taxes include tariffs – Tariff – fee charged when goods are brought into a country from another country – Administrative costs • Include export and import licenses • Other documents • Physical arrangements for getting the product from port of entry to the buyer’s location Roy Philip 18-14 Price Escalation (2 of 3) 18 • Inflation – In countries with rapid inflation or exchange variation, the selling price must be related to the cost of goods sold and the cost of replacing the items • Deflation – In a deflationary market, it is essential for a company to keep prices low and raise brand value to win the trust of consumers • Exchange rate fluctuations – No one is quite sure of the future value of currency – Transactions are increasingly being written in terms of the vendor company’s national currency Roy Philip 18-15 Price Escalation (3 of 3) 18 • Varying currency values – Changing values of a country’s currency relative to other currencies – Cost-plus pricing • Middleman and transportation costs – Channel diversity – Underdeveloped marketing and distribution channel infrastructures Roy Philip 18-16 Sample Causes and Effects 18 of Price Escalation Exhibit 18.2 Roy Philip 18-17 International Marketing 16th edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Approaches to Lessening Price Escalation (1 of 2) 18 • Lowering cost of goods – Manufacturing in a third country – Eliminating costly functional features – Lowering overall product quality • Lowering tariffs – Reclassifying products into a different, and lower customs classification – Modify product to qualify for a lower tariff rate within classification – Requiring assembly or further processing – Repackaging Roy Philip 18-19 Approaches to Lessening Price Escalation (2 of 2) 18 • Lowering distribution costs – Shorter channels – Reducing or eliminating middlemen • Using foreign trade zones to lessen price escalation – Establish free trade zones (FTZs) or free ports • Tax-free enclave not considered part of country • Postpones payment of duties and tariffs • Dumping – Use of marginal (variable) cost pricing – Selling goods in foreign country below the price of the same goods in the home market Roy Philip 18-20 How Are Foreign Trade Zones Used? 18 Exhibit 18.3 Roy Philip 18-21 Leasing in International Markets(1 of 2) 18 • Selling technique that alleviates high prices and capital shortages • Opens the door to a large segment of nominally financed foreign firms – Firms can be sold on a lease option but might be unable to buy for cash • Can ease the problems of selling new, experimental equipment – Because less risk is involved for the users Roy Philip 18-22 Leasing in International Markets(2 of 2) 18 • Helps guarantee better maintenance and service on overseas equipment • Helps to sell other companies in that country • Revenue tends to be more stable over a period of time than direct sales • Leasing disadvantages – Inflation may lead to heavy losses at end of contract period – Currency devaluation, expropriation and political risks Roy Philip 18-23 Countertrade as a Pricing Tool 18 (1 of 3) • A tool every international marketer must be ready to employ – Often gives company a competitive advantage • Russia and PepsiCo – Trading vodka and wine for soft drinks • Countertrade – part of the market-pricing tool kit Roy Philip 18-24 International Marketing 16th edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Countertrade as a Pricing Tool 18 (2 of 3) • Types of countertrade – – – – Barter Compensation deals Counterpurchase or offset trade Product buyback agreement Roy Philip 18-26 Countertrade as a Pricing Tool 18 (3 of 3) • Problems of countertrading – Determining the value of and potential demand for the goods offered – Barter houses • The Internet and countertrading – Electronic trade dollars – Universal Currency/IRTA • Proactive countertrade strategy – Included as part of an overall market strategy – Effective for exchange-poor countries Roy Philip 18-27 International Marketing 16th edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Transfer Pricing Strategy (1 of 2) 18 • Prices of goods transferred from a company’s operations or sales units in one country to its units elsewhere – May be adjusted to enhance the ultimate profit of company • Benefits – Lowering duty costs – Reducing income taxes in high-tax countries – Facilitating dividend repatriation when dividend repatriation is curtailed by government policy Roy Philip 18-29 Transfer Pricing Strategy (2 of 2) 18 • Objectives – Maximizing profits for corporation – Facilitating parent-company control – Providing all levels of management control over profitability • Arrangements for pricing goods for intracompany transfer – Sales at the local manufacturing cost plus a standard markup – Sales at the cost of the most efficient producer in the company plus a standard markup – Sales at negotiated prices – Arm’s-length sales using the same prices as quoted to independent customers Roy Philip 18-30 Price Quotations 18 • May include specific elements affecting the price – – – – – Credit Sales terms Transportation Currency Type of documentation required • Should define quantity and quality Roy Philip 18-31 International Marketing 16th edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Administered Pricing (1 of 2) 18 • The attempt to establish prices for the entire market. • Cartels – Exist when various companies producing similar products or services work together • To control markets for the types of goods and services they produce – May use formal agreements • To set prices • Establish levels of production and sales for participating countries • Allocate market territories • Redistribute profits • May take over entire selling function – Examples • OPEC; The Trans-Atlantic Conference Agreement; De Beers Roy Philip 18-33 Diamond Cartel 18-34 Administered Pricing (2 of 2) 18 • Government-influenced pricing – – – – – – Establishes margins Sets prices and floors or ceilings Restricts price changes Competes in the market Grants subsidies Acts as a purchasing monopsony or selling monopoly Roy Philip 18-35 Summary (1 of 2) 18 • Pricing is one of the most complicated decisions areas encountered by international marketers • International marketers must take many factors into account – For each country – For each market within a country • Market prices at consumer level are much more difficult to control in international than in domestic marketing Roy Philip 18-36 Summary (2 of 2) 18 • Controlling costs that lead to price escalation when exporting products is: – One of the most challenging pricing tasks facing the exporter • Countertrading is an important tool in pricing policy • Pricing in the international marketplace – Requires a combination of intimate knowledge of market costs and regulations – An awareness of possible countertrade deals, – Infinite patience for detail – A shrewd sense of market strategy Roy Philip 18-37