Download Pricing Decisions

Pricing Decisions
• Keegan’s four steps to global pricing
strategy
• General pricing strategies
• Problems with pricing for multinational
markets
• Problems with foreign currency and
economic conditions
• Grey markets
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
• Market skimming
• Market penetration
• Market holding
• Cost-plus pricing
Market Skimming - Sony Betamax
Harvey Schein, President - $1,295 at launch!
Market Penetration - Daewoo
‘blitz’ the market
Market Holding
• Maintain their share of the market
• Currency fluctuations often trigger price
adjustments
• Price adjustments can mean lower, or no
profit margin
• strong home currency could mean
manufacturing/licensing abroad
Cost-plus
• Adds-up all cost of production (and
shipping)
• Easy to make quotes
• Ignores demand and competitive pricing in
target market
• Consumer and competitor value issues must
always considered in a rational pricing
strategy
Problems of multinational pricing
• Co-ordination across various markets?
• Do we maintain a ‘uniform’ pricing
policy across markets?
• How to transfer price between and
across markets? E.g. Sandvik (Sweden)
• Parallel imports or ‘Grey’ markets?
Problems with foreign currency
and economic conditions
• Which currency for pricing in
international markets?
• How to deal with fluctuating
exchange rates?
• Strategies for high inflation rates?
Grey Markets
• Products must be available internationally
(as products are standardised in global
markets)
• Low trade barriers (tariffs, legal restrictions,
transport costs)
• Price differentials must be great enough (so
that grey marketers can make a profit)
Duhan and Sheffet (1988)