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Global Marketing
Management
A European Perspective
Global Pricing
Warren J. Keegan
Bodo B. Schlegelmilch
Overview
Environmental Influences on Pricing Decisions
Different Approaches to International Price
Setting
Standardisation vs. Differentiation
Dumping
Grey Markets and Parallel Imports
Transfer Pricing
Summary
Keegan/Schlegelmilch
Global Marketing Management: A European Perspective
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Learning Objectives
Know about the complexity of international price setting
Appreciate which external and internal factors influence
international pricing
Learn about different approaches to setting prices
Be aware of factors promoting or inhibiting international
price standardisation
Know how to react to dumping by competitors
Learn which key issues are involved in transfer pricing
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Global Pricing: Important Concepts
Rigid Cost-Plus Pricing and Flexible Cost-Plus Pricing
Dynamic Incremental Pricing
Price Corridor
Dumping
Parallel Imports and Grey Markets
Transfer Pricing
Principle of Arm`s Length
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Environmental Influences on Pricing
Decisions (1)
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
Inflation
Inflation is a persistent upward change in price levels
Inflation requires periodic price adjustments
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Global Marketing Management: A European Perspective
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Environmental Influences on Pricing
Decisions (2)
Government Controls and Subsidies
In countries, which are undergoing severe financial
difficulties, governments may restrict price increases or
prescribe fixed prices
Competitive Behaviour and Market Demand
Pricing decisions are also dependent on the nature of demand
and competitive action
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Global Marketing Management: A European Perspective
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Rigid Cost-Plus Pricing
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
Cost-Plus Pricing sometimes ignores competitive
conditions
Rigid cost-plus pricing is mostly used by companies
new to foreign business
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Global Marketing Management: A European Perspective
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Flexible Cost-Plus Pricing
Flexible cost-plus pricing is based on the same principle
as rigid-cost plus pricing
However: Prices may vary, if the market situation
requires (e.g. the nature of the customer, the size of the
order or the intensity of local competition)
Keegan/Schlegelmilch
Global Marketing Management: A European Perspective
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Dynamic Incremental Pricing
Price setting practice which is based on the idea that
fixed costs occur regardless of whether the company is
successful or not
The goal is to regain at least variable costs and
international marketing and promotion costs in export
ventures
This strategy is also known as penetration pricing
Penetration pricing means that the product may be sold
at a loss for a certain time to gain market share
Keegan/Schlegelmilch
Global Marketing Management: A European Perspective
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Standardisation vs. Differentiation in
International Pricing
It is an important question whether prices should be
standardised across markets or differentiated between
international markets
Companies do not act consistently
Cross-subsidisation: a company uses financial resources
from one area to compete in another area
Keegan/Schlegelmilch
Global Marketing Management: A European Perspective
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Influences on Prices Standardisation
vs. Differentiation
Reduction of Trade
Barriers
Competitive
Situation
Decreasing
TransportationCosts
Optimal Prices!
Price Nivellation?
Future Developments
External Drivers
Customer Preferences
Cost Situation
External Drivers
Factors Driving
Price Standardisation
Active Retailers/Grey
Markets/Global Sourcing
Inflation/Exchange Rates
ImprovedCommunication
and Information Flow
Regulations/
Tariffs and Duties
Increasing Brand
Globalisation/
Standardisation
Company-Related
Drivers
Market-Related Drivers
Factors Driving
Price Differentiation
Source: Hermann Simon and Robert J. Dolan, Profit durch Power Pricing, Campus, Frankfurt,
1997: p. 168.
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Global Marketing Management: A European Perspective
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An International Price Corridor
Unfavourable
Scenario
Recommended
Scenario
International
Prices
International
Prices
highest
highest
Future International
Price Corridor
lowest
lowest
today
Time
tomorrow
today
Time
tomorrow
Source: Hermann Simon and Robert J. Dolan, Profit durch Power Pricing, Campus, Frankfurt,
1997: p. 176.
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Global Marketing Management: A European Perspective
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Decision Making Framework for
International Pricing
Estimate the price of the product„landed“ in the foreign market by considering
internationalcustomer costs(documentation, freight, insurance, etc.)
Estimate the price the importer/distributorwill charge
by considering tariffs and intermediary profits
Estimate target price range forend users; estimate
floor, ceiling, and expected prices
Assess company sales potential at given prices
Examine corporate goals and preference for pricing strategy
Select suitable pricing strategy: rigid cost-plus; flexiblecost-plus; dynamic incremental
Check consistency with current price setting
across product lines, customers, and markets
Implementation:select tactics, distribution prices, and end users prices
Monitormarket performance and make adjustments as necessary
Source: S. Tamer Cavusgil, “Pricing for Global Markets”, Columbia Journal of World Business, Winter 1996: p. 73.
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Global Marketing Management: A European Perspective
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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
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Global Marketing Management: A European Perspective
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Grey Markets and Parallel Imports
Distribution of trademarked products in a country
through channels unauthorised by the trademark owner
Grey marketers take advantage of price differences
between markets by re-importing branded merchandise
from low-price to high-price markets
Parallel Imports reduce or cannibalise sales by
authorised channel members in high-price countries
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Global Marketing Management: A European Perspective
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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
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Global Marketing Management: A European Perspective
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Tax Regulations and 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
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Global Marketing Management: A European Perspective
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Summary
There are three different approaches to price setting
Rigid-cost pricing
Flexible-cost pricing
Dynamic incremental pricing
Dumping refers to selling products in international
markets at prices below those in the home country
Grey Markets
Transfer Pricing
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Global Marketing Management: A European Perspective
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