Global Perspective
The Price War
• Setting the right price for a product or service can be the key to
success or failure
• An offering’s price must reflect the quality and value the consumer
perceives in the product
• As the globalization of world markets continues, competition
intensifies among multinational and home-based companies
• The marketing manager’s responsibility is to set and control the
actual price of goods in different markets in which different sets of
variables are to be found
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Pricing Policy
Parallel Imports
• Occurs whenever price differences are greater than the cost of
transportation between two markets
• Major problem for pharmaceutical companies
• Exclusive distribution
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.
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How Gray-Market Goods End up in U.S. Stores
• Insert Exhibit 18.1
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Approaches to International Pricing
Skimming versus Penetration Pricing
• Skimming – a company uses when the objective is to reach a
segment of the market that is relatively price insensitive and thus
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.
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Price Escalation
• Costs of exporting
- Price escalation
• Taxes, tariffs, and administrative costs
- Tariff – fee charged when goods are brought into a country from
another country
- Administrative costs include export and import licenses, other
documents, and the physical arrangements for getting the product
from port of entry to the buyer’s location
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Price Escalation (continued)
• 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
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Price Escalation (continued)
• 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
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Sample Causes and Effects of Price Escalation
• Insert Exhibit 18.3
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Approaches to Lessening Price Escalation
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•
•
•
•
Lowering cost of goods
Lowering tariffs
Lowering distribution costs
Using foreign trade zones to lessen price escalation
Dumping
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Countertrade as a Pricing Tool
• Why purchasers impose countertrade:
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To preserve hard currency
To improve balance of trade
To gain access to new markets
To upgrade manufacturing capabilities
To maintain prices of export goods
To force reinvestment of proceeds from weapons deals
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Countertrade as a Pricing Tool (continued)
• Types of countertrade
-
Barter
Compensation deals
Counterpurchase or offset trade
Product buyback agreement
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Transfer Pricing Strategy
• Benefits:
- Lowering duty costs
- Reducing income taxes in high-tax countries
- Facilitating dividend repatriation when dividend repatriation is
curtailed by government policy
• 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
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Administered Pricing
• Cartels
- Exists when various companies producing similar products or
services work together to control markets for the types of goods and
services they produce
- Example: OPEC
• Government-influenced pricing
-
Establish margins
Set prices and floors or ceilings
Restrict price changes
Compete in the market
Grant subsidies
Act as a purchasing monopoly or selling monopoly
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