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Chapter Fourteen
Global Pricing
MKT568
Global Marketing Management
Dr. Fred Miller
Sample Essay Question
DeWine is South African producer of jewelry hand crafted from
the country’s gold and precious stones. The firm wishes to build
upon its success in African markets by expanding to Europe,
Asia, North and South America.
1. Identify and describe the three general international marketing
strategies. (6 points)
2. For each element of the marketing mix (product, price, promotion
and distribution), identify and describe one benefit of a global
strategy and one constraint to implementing such a strategy. (12
points)
3. Which of the three general marketing strategies do you
recommend to DeWine? Explain why. (2 points)
Pricing Basics
Global Pricing Framework
Costs - full vs direct
Experience curve - assumed decreases
Competition
reservation price, perceived value (commodity + differential)
Demand elasticities - elastic vs inelastic
elastic means price DECREASE raises revenue
inelastic means price INCREASE raises revenue
Direct vs Full Cost Pricing
Do we accept this offer?
$.25
$.90
$.75
Direct
Variable cost per unit
$.75
Offer
Full
Fixed cost per unit
Experience Curve Illustration
Experience Curve Effect
A doubling of cumulative volume
reduces avg unit cost by 20%
$1.25
$1.00
$0.80
Year 1
Year 3
Year 5
Year 6
Experience Curve Illustration
Cost
PriceEffect
Effect
$1.67
Margin = 40% RoS
$1.50
$1.00
$1.00
$0.90
$0.80
Jan 1
Avg
Year 6
Dec 31
Experience Curve Illustration
Experience Curve Effect
A doubling of cumulative volume
reduces avg unit cost by 20%
$1.50
$1.25
$1.20
$1.00
$0.80
$0.72
$0.64
Year 1
Year 3
Year 5
Year 6
Year 7 Avg
Year 7
Pricing Decision Factors
Transfer pricing - definition, goals, methods
Systems pricing - bundle or unbundle
Price and positioning - price/quality, PLC
(skimming/penetration)
Countertrade
major forms of countertrade
managing countertrade
Transfer Pricing Illustration
Tax Rate =
Cost =
50%
$
20
Tax Rate =
Price =
Transfer Price =
$
70
Income Statement
Income Statement
Sales =
$
Cost =
$
Gross Margin = $
70
20
50
Taxes =
Net Margin =
25
25
$
$
25%
$ 120
Total Margin =
Sales =
$ 120
Cost =
$ 70
$100 Gross Margin = $ 50
Taxes =
Net Margin =
Total Profit =
$ 63
$ 13
$ 38
Types of Countertrade
Barter
The direct exchange of goods/services between trading
partners
Compensation Deals
Involve payment both in goods and in cash; the inclusion
of some amount of cash makes the deal more attractive to
the seller.
Counterpurchases
The most typical version of countertrade; two contracts
are negotiated, one to sell the product (which constitutes
the initial agreement) at an agreed cash price, and one to
buy goods from the purchaser at an amount equal to the
amount in the initial transaction.
Product Buy-backs
May take two forms; 1) seller agrees to accept some
amount of output as full or partial payment, 2) seller
agrees to buy back some output at a later date.
Offset Deals
The seller contracts to invest in local production or
procurement to partially offset the sale price.
14-8
Seiko’s Authorized and Unauthorized
Channels of Distribution
Europe
Hong Kong
Japan
North America
Importer
Importer
Distributors
Distributors
Distributors
Distributors
Retailers
Retailers
Retailers
Retailers
Importer
Solid arrows denote the flow of Seiko watches through authorized channels of distribution.
Broken arrows denote the flow of Seiko watches through unauthorized channels of distribution.
Exhibit 14.5
Source: Jack Kaikati, “Parallel Importation: A growing Conflict in International Channels of Distribution,”
Symposium on Export-Import Interrelationships, Georgetown University, November 14-15, 1985.
Global Coordination of Pricing
Pricing against gray trade
economic controls, centralization, formalization, informal
coordination
decision matrix
Polycentric, geocentric, ethnocentric pricing
polycentric: local pricing (multidomestic)
geocentric: global/regional standard with local adjustments
(global with localization)
ethnocentric: standard, worldwide pricing (global)
decision factors
13-11
Coordinated Pricing Strategies
Level of Marketing Standardization
High
High
Economic controls
Low
Centralization
Low
Informal coordination
Strength of
Local
Resources
Formalization
Source: Gert Assmus and Carsten Wiese, “How to Address the Gray Market Threat Using Price Coordination,”
Sloan Management Review, 36, no.3 (1995), pp. 31-42. reprinted by permission of publisher. ©1995 by the
Sloan Management Association. All rights reserved.
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Chapter Fourteen
Global Pricing
MKT568
Global Marketing Management
Dr. Fred Miller