Marketing Across Cultures, chapter 11
The critical role of price in relational exchange
The chapter focuses on one of the elements in the marketing mix, viz. price.
Price is an objective element of exchange, but Usunier argues in chapter 11 that even a
seemingly objective notion like ‘price’ has a subjective and perceptual side to it. In other
words: price may be viewed as a signal conveying meaning.
1. Price as a signal conveying meaning
NB. Do not use the singular of ‘goods’. Instead write ‘product’.
When clearly displayed or announced, prices are not central to the relationship
between a buyer and a seller. However, if not announced prices may stimulate
contact . Usunier distinguishes between prices as ‘strictly economic’ and ‘relational’
(causing relationships to develop between the buyer and the seller). See table
11.1, p. 355 for an overview of meaning conveyed by prices through a number of
situations.
1.1.
Bargaining
Terms: Oligopolistic distribution channels (distribution channels controlled by a
limited number of giant companies, who compete).
Bargaining is unheard of in a number of situations, such as at the checkout in a
supermarket. This goes especially for consumer non-durables whereas it is much
more common to bargain in the market for consumer durables such as equipment
for firms and households.
In developing countries bargaining is much more common in all markets. People
bargain for survival, because they have enough time and for fun. There are many
psychological elements in bargaining, which becomes a role play. Asking the price
may indicate that you cannot afford the product.
How are prices fixed?
There are at least 4 elements present in prices: 1) the power of each party, 2) the
degree of urgency on the part of the buyer or seller, 3) the importance of a buyer
being able to show negotiation skills, 4) the social process in which the deal is
negotiated (e.g. competitive bidding situations) 5) The scarcity of the product.
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Marketing Across Cultures, chapter 11
The critical role of price in relational exchange
Non-monetary price (Becker 1965)
Consumers accept sacrifices when they buy a product. There is the objective price,
which may be ‘more or less expensive’, but there is also the time spent in shopping,
or the idea that home-made food is best, etc. (This is the perceived non-monetary
price). The question raised here is how consumers use price as a cue to assess
quality. E.g. does the German washing machine Miele last 3 times as long as the
Zanussi, which is 3 times cheaper? (To what extent does the consumer’s belief
reflect his or her willingness to buy the product).
Is there a one-to-one relationship between objective quality and high price? (p.
361). Studies have shown that in many cases there is no such relationship. Positive
price-quality correlations indicate correlations between objective price and objective
quality. Negative correlations indicate correlations between high price and low
quality or vice versa. Correlations measured across a number of countries seem
weak.
Methods of assessment:
Best value: Customers choose the brand with the best utility compared to price
Price seeking: Customers choose the brand with the highest price, presuming that it
is also best quality
Price aversion: Customers infer that the brand with the lowest price is the best buy
to minimize cost.
The role of religion (Chatolicism, Protestantism – Northern ad Southern Europe).
1.2.
International price tactics
What are the overall objectives of price manipulation? The answer is: 1) profit, 2)
volume of sales and 3) market interactions. The third point includes a number of
elements, viz. image promotion, market stability, customer loyalty, elimination of
competitors. Three possible positions are described for international strategic
pricing:
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Marketing Across Cultures, chapter 11
The critical role of price in relational exchange
a) The extension/ethnocentric position (one single price based on factory price (ex
works))
b) The polycentric adaptation position: (local subsidiaries fix their own prices)
c) The intermediate geocentric inventive position: (the subsidiary tries to strike a
balance of local price levels and international ones)
For a firm to maximise its profits it must sell its products at a price that is higher
than or equal to the marginal cost (the expenses incurred in the production of the
last unit, that is the direct cost of additional production) (Usunier: p 365)
Sunk costs: Overheads and other initial fixed expenditure.
Cost price or direct costing? The problem here is whether the price of a product is
calculated on the basis of all costs or on the basis of marginal cost (the cost of
producing the last unit (in additional production). Marginal cost is always lower than
the average cost based on all costs.
What is dumping? Selling products in foreign markets at prices based on marginal
cost rather than on total cost. Prices of dumped products may sometimes even
have been calculated on the basis of subsidies. Dumping is not allowed according
to GATT.
Prices may sometimes be reduced temporarily when companies penetrate new
markets, only to be raised after a while. Japan is notorious for following that
strategy. (Price slashing as a global strategy). For example Japanese car
manufacturers entered African markets and sold cars at low prices. Later they
increased their prices, saved the image of the product and raised profit margins.
Another example is the Toyota Celica, which was sold in France at a higher price
than in the USA (because of low taxation in the US). Japan tend to position their
cars in the luxury bracket.
Grey markets: an exporter sells to an unauthorized agent, who resells the products
in a local market at prices lower than those charged in the manufacturing country.
The basis of grey market operations is found in price differences between
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Marketing Across Cultures, chapter 11
The critical role of price in relational exchange
neighbouring countries. Tourists buying products in e.g. Bhali and benefiting from
exchange rate fluctuations may be able to sell the same products in the home
country, thus competing with officially appointed agents. (Parallel markets based on
urgent demand).
How can grey markets be countered?
Prices may be lowered in national markets to offset the price differential; the official
product may be changed so that it has favourable features compared to the product
sold on the grey market; different customer segments may be targeted; dealers may
be trained to understand the mechanisms behind parallel markets; dealer
agreements may be terminated, if the dealer buys from unauthorized parallel
sources; the grey market goods may be bought back. An example of a parallel
market is the aftermarket for spare parts for the automotive industry.
1.3.
Market situations, competition and price agreements
What is the role played by Adam Smith’s ‘the invisible hand’? Do companies prefer
to ‘fight it out’ in cutthroat competition, or do they seek agreement? That all
depends on each individual situation.
American anti-trust legislation counters the formation of monopolies, but in other
parts of the world competition has been somewhat suppressed: e.g. cartels in
Germany and zaibatzus (industrial giants under the control of one extended family)
in Japan. However, in Japan zaibatzus have co-existed informally with competition
in other parts of society. That competition is so fierce in Japan often surprises
foreign companies investing in Japan.
The role played by high inflation rates is that of weakening local currencies, thus
lowering the purchasing power of local consumers when they buy imported goods.
Interestingly, there seems to be a correlation of high power distance and high
inflation rates.
Over- and under-invoicing
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Marketing Across Cultures, chapter 11
The critical role of price in relational exchange
Local business people (subsidiaries), e.g. in South Africa, ask their suppliers to
over-invoice them, which means that they transfer more money than the value of
the goods received, and their customers abroad to under-invoice, which means
than their customer pay less money than the value of the goods bought by them.
(The result is that money flows out of e.g. South Africa from subsidiaries to mother
companies in the US or Europe and the foreign customer will pay the difference into
an account abroad in a fully convertible currency, such as dollars). This is used
when there are strict currency regulations.
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