Post on 18-Jan-2016
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 1
GLOBAL PRICING ISSUES• Price--definition • Applicability of price
research outside U.S./Western Europe
• Pricing issues in international trade
• Pricing under “hard” currency scarcity
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 2
Approaches to Pricing
• Cost based– “Cost-plus”– Marginal cost for new market– Experience based costing
• Prestige pricing
• Market based pricing (demand)
• Perceived customer value
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 3
Reasons for Cost Declines With Volume• Experience curves
• Economies of– Scale– Scope
• Spreading R&D costs over more units
• Lower costs of operating in other markets– Labor costs– Costs of other resources
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 4
Experience Curves
• Experience apart from economies of scale and volume buying power• 80% vs. 64% experience curves (actual numbers will vary depending
on specifics)• Costs of initial units are very high and not very meaningful• With time, subsequent declines in cost take longer
Experience Curve Costs of Production
0
0.2
0.4
0.6
0.8
1
1.2
0 1,000 2,000 3,000 4,000
Cumulative Production
Unit
Co
st
Cost--U.S.
Cost--Japan
80%64%
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 5
The Role of Cost
PRICECONSIDERED
INVESTMENTIN SPECIAL
VALUE
MARKET PRICESFOR SIMILAR
VALUE
CUSTOMERVALUE
LOWER COST THROUGH VOLUME
PRODUCTIONAND MARKETING
COST
VALUE >COST +
PROFIT?
VALUE > DIFFERENTIALFROM LOWER COST
ALTERNATIVE?
PRICE OFFERINGIF VIABLE
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 6
Financial Issues
• Currency of transaction– One side will face exchange rate risks– Costs of hedging and futures contracts– Currency convertibility and repatriability
• Transfer prices between subsidiaries– Fairness of evaluation– Tax consequences need for “arms length”
transaction
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 7
Price and Positioning• Strategies
– Market brand– Value brand– Prestige brand
• Impact of Product Life Cycle (PLC)• Cross-market spillover• Policies
– Polycentric (price set for each set of markets)– Geocentric (global policy but individual mark-up
decisions)– Ethnocentric (same price across countries)
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 8
“Gray” Trade• “Gray” vs. “black” markets
– Parallel importing– Re-importing (e.g., U.S. pharmaceuticals)
• Legality• Diversion to higher cost markets (arbitrage)• “Consumer tourism”—forms
– Limited quantities– Trip made for purchase of bringing back materials– “Nominal” travel to legitimize purchase
• Manufacturer response
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 9
Counter Trade
• Barter
• Compensation deals
• Counter purchases
• Product Buy-Back
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 10
Effects of the Euro• Stable “exchange rates”• Easier comparability of prices across
countries• May have served as sign of international
competitive pressures• Changing prices to the Euro
– Possible opportunity for price increase– Rounding issues– Highly visible and “institutionalized” prices– Concerns about competitor strategies
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 11
Distribution• Transportation logistics• Role of channel
members– customs
– legal restrictions
• Structure of channels• Legal issues• Infrastructure issues
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 12
Retailers--Formats• Level of
– service
– assortment
• Tradition of where merchandise is sold
• Location and convenience
• (Inter)national vs. local chains
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 13
Global Retailing• Increasing presence of international retailers
across countries– Outright entry– Acquisition of local chains continued under the
original name and position
• May be able to take advantage of cross-market– Bargaining power– Economies of scale
• Balance with local sourcing
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 14
Legal Constraints on Retailing• Restricted store
hours• Regulation of
assortment• Preferences for small
retailers• Product uniformity• Price maintenance/
selective discounts
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 15
Parallel Distribution• “Gray” market vs. counterfeiting• Gray markets--diversion from
– authorized to unauthorized dealers within a country
– lower cost areas (e.g., Mercedes Benz from Europe to U.S.)
– temporary promotions in one region
– highly taxed areas (usually through tourist purchases)
MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 16
Effects of Gray Trade• Brand equity• Relationships with
established dealers• Legal liabilities• Complication of
marketing strategies