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International pricing strategies

International pricing strategies. Learning Objectives. Identify and evaluate the factors affecting international pricing Appreciate the significance of costs Develop pricing strategies for different products/markets

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International pricing strategies

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  1. International pricing strategies

  2. Learning Objectives • Identify and evaluate the factors affecting international pricing • Appreciate the significance of costs • Develop pricing strategies for different products/markets • Appreciate the problems associated with implementing international pricing strategies

  3. Pricing is………. • The only element of the marketing mix which creates revenue (and profit?) • The most neglected element of the marketing mix in terms of academic research • Increasingly important in the wake of • market de-regulation • price harmonisation policies

  4. What influences international pricing? • Corporate objectives/strategy • Costs

  5. What influences international pricing? 1. Company objectives/strategy pricing* • Take margins now (premium pricing strategy) • USE: • following high investment in R&D, A&P, brand development etc. • Reflect premium brand/product • Take margins later (discount pricing strategy) • USE: • entry strategy e.g. Nissan, Toyota, Honda in 1970s • e.g. a strategy to buy market share • Never take margins (loss leader strategy/cross-subsidisation) • USE: • to promote engagement with the brand *Lancioni and Gattorna, 1992

  6. What influences international pricing? 2. Company costs – usually the price floor • Fixed/indirect – unrelated to the level of output • High for services • Variable/direct - related to the quantity produced • Low for services • Specific international costs (price escalation): • Carriage, insurance and freight (c.i.f.):transport, agents’ fees, port charges, documentation costs etc. • Plus: • Import duty • Distributor mark-ups • Host country tax

  7. Impact of price escalation - 3 cases

  8. What influences international pricing? • What costs can we avoid? • e.g. do we set up sales offices or build a factory? • Can we franchise or license our operations • What costs must we absorb? • Exchange rate movements • Taking lower profits abroad?

  9. What influences international pricing? 3. Consumers • No two countries are exactly the same • Purchasing power (disposable income) • Stage in the PLC • First time buyers? (e.g. McDonald’s in Russia) • Brand loyalty • Attitude to quality

  10. What influences international pricing? 4. Competition • Competitive rivalry: • How many? • Size? • Host country companies? • Multinational companies? • Threat of new entrants/barriers to entry • Threat of substitutes

  11. What influences international pricing? 5. Country/regional factors: • Trade bloc factors • e.g.price harmonisation in Europe • Little evidence in reality yet! • Pressure groups • E.g. Organisation of Petroleum Producing Countries (OPEC)

  12. What influences international pricing? • Variations in % Value Added Tax (VAT) • Variations in tax structure • e.g. luxury car tax • e.g. lower tax on parts for local assembly • Export credits for local purchasing

  13. What influences international pricing? 6. Currency/monetary factors • Differential inflation rates between producing country and host countries • Changing exchange rates • E.g. appreciation of the Yen in 1990s • Both can seriously undermine positioning strategies

  14. Exchange rate fluctuations raise two issues • How much of the price change can be passed through to customers? • To what extent do we price to market ? • E.g. Export price to US=£100 • Xrate is $2:£, US price =$200 • Xrate rises to $2.5:£, US price =$250 • Do we: • pass tho’ and loose market share or • price to market and take a cut in profit ($50=£20) • Evidence that German companies pass thro’ and Japanese companies price to market

  15. What influences international pricing? 7. Channels • Variations in distributor power • e.g. retailers in UK, France and Germany • Variations in margins between countries • Alternative: • distribute direct/cut out the middle man • e.g. Mercedes in Europe

  16. What influences international pricing? 8. Large differences in price between countries lead to Parallel importing • Undertaken by unofficial distributors • Taking advantage of differential prices • e.g. pharmaceuticals in Europe: - Glaxo’s Zantac sold to Greece, bought by UK distributors, re-imported and sold to the NHS! • Undercuts official prices, reduces profits and undermines brand propositions

  17. Transfer pricing • Intra-company trading to maximise global profit • Relates to movement of raw materials, components as well as finished goods/services • To reduce the impact of duty and tax • Set low prices in high duty/tax countries • Set high prices in low duty/tax countries • Ethical concerns

  18. Dumping • Selling at lower prices in foreign markets • At less than ‘cost’ • Illegal in many countries e.g. US • Examples: • Boeing v Airbus Industrie • Recent steel duty increases in U.S. • Difficult to prove

  19. Counter-trade • Non-currency related payment • e.g., goods or partial J.V.s • Used by countries with limited reserves of convertible currency • c5% of UK exports, c8% of world trade (GATT), could be much higher • Distinct from barter (goods only payment) - less risky

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