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Strategic Pricing Decisions for Global Markets

Explore pricing strategies like skimming, penetration pricing, market skimming, and market pricing. Assess external and internal pricing environments, setting export prices, customer purchase factors, pricing policies, and export pricing strategies. Learn about export-related costs, negotiating terms of payment, and managing foreign exchange risks. Understand dumping practices and remedies for combating unfair competition in global markets.

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Strategic Pricing Decisions for Global Markets

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  1. Chapter 14 Pricing Strategies and Tactics

  2. Price Dynamics • Pricing is the only revenue generating element of the marketing mix. • Pricing is a means of attracting and communicating an offer to a potential buyer. • Pricing is a competitive tool. • Pricing can be used to position the product or service in the marketplace.

  3. Different Pricing Strategy • Skimming • Is to achieve the highest possible contribution in a short initial time period, then gradually lowering the price as the market. • Market Pricing • Following competitive pricing in the target market; adjusting production and marketing mix to competitive conditions. • Penetration Pricing • Offering low pricing to generate volume sales which hopefully will compensate for low margins.

  4. Market Skimming • Charging a premium price • May occur at the introduction stage of product life cycle • Meet the demand of innovators and early adopters who are willing to pay higher. • Used consistently in consumer electronic industry

  5. Penetration Pricing • Charging a low price in order to penetrate market quickly • Appropriate to saturate market prior to imitation by competitors • Packaged food product makers, with products that do not merit patents, may use this strategy. 1979 Sony Walkman

  6. ASSESSMENT OF PRICING ENVIRONMENTS EXTERNAL • Market-related factors • Nature of demand/target audience characteristics • Government regulations (e.g., duties) • Exchange rate stability • Industry-related factors • Competition intensity • Nature of competition INTERNAL • Marketing Mix • Product (e.g., old/new; standardized/differentiated • Distribution system (e.g., length) • Promotion needs (e.g., sales efforts) • Company characteristics • Extent of internationalization • Countries exported to • Management attitudes • Importance of exports • Overall price position of firm Pricing Policy Selection Pricing Strategy Determination Setting of Specific Price

  7. The Setting of Export Prices Customer Purchase Factors • ability to pay • price-quality relationship • reaction to marketing mix • market support Pricing Policies Factors • profit maximization • market share • survival • return on investment • competitive policies • copy competitive pricing • follow competitive pricing • price to discourage competitive entry

  8. Export Pricing Strategy • Cost-oriented pricing • Standard worldwide price- regardless of buyer’s location in the market(s) • Market-differentiated pricing • based on the dynamics of the marketplace • changes in competition, exchange rates, or other environmental changes etc.

  9. Export-Related Costs • Export-related costs • Cost of modifying a product for a foreign market • Operational costs of exporting • Cost incurred in entering the foreign market • Price escalation for exports results from • Clear-cut and hidden costs

  10. Methods for combating price escalation • Reorganize the channel of distribution • Product adaptation • Change tariff or tax classifications • Overseas assembly or production

  11. Negotiating Terms of Payment • Considerations • The amount of payment and the need for protection. • Terms offered by competitors. • Practices in the industry. • Capacity for financing international transactions. • Relative strength of the parties involved.

  12. Terms of Payment • Cash in Advance • Not widely used except for first time transactions • Letter of Credit • Promise to pay • Irrevocable, confirmed, non-revolving • Drafts • Similar to personal check • Must obtain shipping documents prior to delivery • Documentary collection • Bank acts as collection agent • Draft may be sold at discounted rate for immediate cash

  13. Managing Foreign Exchange Risk • Forward rate exchange market • “the exchange of currencies on a future date at an agreed upon exchange rate” • Spot rate transaction • “the exchange of currencies for immediate delivery”

  14. Dumping • Ranges of dumping • Predatory dumping • is intentional selling at a loss to increase market share • Unintentional dumping • occurs when market factors cause the import’s selling price to fall below prices in the exporter’s home market • Remedies for dumping • Antidumping duty • are levied on imported goods sold at less than fair market value • Countervailing duties • are imposed on imports which are subsidized in the exporter’s home country

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