L4 International marketing strategy:pricing
Overview
1 Introduction / pricing objectives
2 Cavusgils’ model
3Global pricing
4 Price escalation
5 Impacts that might lead to price escalation
6 Calculation/ example of price escalation
7 Roberts’ model of price determination
8 Target costing
9 Experience curves
10 Countertrade
11 Types of countertrade
12 Transfer pricing
13 International price comparison
14 Matrix pricing
1Pricing objectives
Cavusgil’s model
Company factors- target export markets - S.T.P’s.in those markets- .
functional mix strategies in those markets
---------------------------------_ economics of R&D,technology -N.P.D- factor inputs
( material + labour costs )
productivity , scale and experience effects( see later)
----------------------------------_distribution /marketing costs -which channels + logistics
to use abroad ?
Product factors – new or current product? Degree of differentiation ?
Stage in P.L.C.?
consumer or industrial product ?
commodity ,manufactured or service good ?
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Cavusgil’s model continued
Market factors_ consumer income, needs , tastes behaviour( see portfolio)
_ regulatory frame work- controls on import / export
_ dumping , taxes , price controls
_ competition – strengths ,substitutes
_ exchange rate plus forecasts
_ market structure and market prices
_ environment and pricing structure in other markets
Nb All parts of Cavusgils’ model impact upon the pricing policy for a given
country / mkt and also the terms within a given export contract for that market.
3The global price- setting decision process
4Factors influencing price escalation
4Impacts that may lead to price escalation
6 Example of price escalation
7 Robert’s model of export price determination
Ways to reduce costs in the factory
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Substitute alternative materials
Use standard parts or materials
Relax manufacturing tolerances
Utilise standard manufacturing methods
Eliminate unnecessary design features
Design the product and its manufacturing process
‘Buy- in’ rather than make
Use pre- finished materials
Use pre- fabricated parts
Eliminate parts or operations
Rationalise product ranges / range of parts
Substitute low- cost manufacturing processes
Elininate waste ( japanese mudas )
Reducing cost in the distribution channel
• Move to a low- cost production location e.g Kaliningrad for
B.M.W.cars
• Reduce the number of intermediaries in the channel
• Negotiate lower margins with distributors in exchange for more
business/ bigger volumes to handle
• Modularise product &source expensive items abroad e.g. Toyota
piston assemblies for engines
• Ship in ‘K.D.’ form and assemble abroad
• Integrate forward with distribution companies
8The target costing process
Czinkota et al 2011
chp 11 p 369
Traditional (western approaches) v Japanese approaches
to setting price
9 Experience curves
Y1
Y2
Experience curves and value chain activities
10 Countertrade
Defn : countertrade is an umbrella term for a whole range of
commercial mechanisms for reciprocal trade.These include
counterpurchase , barter, buyback, offset, switch trading and
evidence accounts.
A characteristic of countertrade is that export sales to a given market
are made conditional upon undertakings to accept imports from that
market
e.g. A British exporter sells to country X on condition that he
accepts agricultural products from country X in payment
Example of countertrade with an international chemical
company
Classification of forms of countertrade
Why has countertrade grown?
1 Countries and / or large corporations or individuals have products
that they wish to get rid of.
2 Over- printing of the U.S. Dollar domestically means that countries
holding large amounts of dollar reserves feel that those reserves
are under threat/ loosing value
e.g. China ,India, Russia
This may lead to the need for a replacement currency for financing
international trade. Problem is that there isn’t one or not enough of
one .Hence countries prefer to trade in e.g. raw materials via
countertrade.
3 Instability in the Euro has a similar scenario. Export strength of
Germany without accompanying imports e.g. from other E.C.
Members like Greece creates huge debts/ borrowing in Greece
11Types of countertrade
1 Counterpurchase
Here 2 parallel contracts are issued .One for the main
order and paid for in cash/ credit the other for the
counter purchase paid for in goods /services .The latter
is usually a fraction or % of the main order price
e.g Indonesia wishes to buy oil from Iran. A deal is
negotiated whereby Iran agrees to buy indonesian tea
,plywood and rubber in return for oil.
Continued
2 Barter .
This is the direct exchange of ‘goods for goods’.A
single contract covers both flows of goods with no cash
being involved.
Problem : the supply of the main export good is often
delayed until sufficient money has been earned from the
sales of the bartered good
e.g. 200,000 tonnes of Greek wheat for 600,000 tonnes
of Algerian crude oil
Continued
‘Buyback ‘deals
A buyback deal is where suppliers of e.g capital plant agree to its
repayment using the future output of that plant
e.g.Italian producers of acrylic fibre plant ‘sold’ this to Russia in
return for deliveries of acrylic fibre to pay for the plant.
e.g. Reed international provided a pulp plant to Sweden .It was
paid for with the output of the plant ( paper)
4 ‘Offset ‘trade
These forms of trade are frequently used for’ technology
contracts’.The exporter agrees to incorporate into his / her final
product the components or sub-assemblies of the importer
e.g. The French E.D.F company will build nuclear power stations
for Britain but will incorporate components / pumps from Rolls
Royce ( announced 16th Feb2012)
3
Continued
5 ‘Switch trading’( Swap deals )
Overtime there may be imbalances in long term bilateral trade .This may
lead to the accumulation of uncleared credit surpluses
e.g. Brazil used to have large credit surpluses with Poland
In the above situation a third country e.g. U.K. may export to Brazil and the
finance for this will come from the sale of Polish exports to U.K. ( or
elsewhere)
12Transfer pricing
U.S.A.plant
Int. Border
Manufacturing
company
Common ownership
Goods
Doole & Lowe(2008) chp 11
,p 401
U.K shop
Marketing
company
Effects of transfer pricing
International price comparison/ use of matrix pricing
14Matrix pricing : use when there is a large product range/many price
changes
References
Czinkota et al( 2011) chp 11,
Kotabe & Helson(2011) chp 12,
Cateora et al (2009) chp 18 p,
Mulbacher et al ( 2006) chp16,
Doole & Lowe (2008 ) chp 11,
Lee & Carter ( 2009 ) chp 14 ,
Ghauri & Cateora(2010) chp 18 ,
Johannsen ( 2006 ) chp 14 ,