Global Pricing

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Global Pricing
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Price Escalation - The Lower Prices are at Home
New York
London Paris Tokyo
Mexico City
Aspirin 0.99 1.23 7.08
6.53 1.78 Cup of coffee 1.25 1.50 2.10 2.80
0.91 Movie 7.50 10.50 7.89 17.29 4.55 Compact
disk 12.99 14.99 23.16 22.09 13.91 Levi 501
jeans 39.99 74.92 75.40 79.73 54.54 Ray-Ban
sunglasses 45.00 88.50 81.23 134.49 89.39 Sony
Walkman 59.95 74.98 86.00 211.34 110.00 Nike Air
Jordans 125.00 134.99 157.71 172.91 154.24 Gucci
men's loafers 275.00 292.50 271.99 605.19 157.27
Nikon camera 629.95 840.00 691.00 768.49
1,054.42
SOURCE "Tourists and Bargains Galore," Fortune
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Pricing concepts

• Law of one price in global markets applies only
  to some products
• Due to fragmentation, competition, affordability,
  regulation, differences occur in national markets
  
• Internet and integration lower this trend
• Currency fluctuations

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Boundaries for Market Price

• Therefore, managers need to develop pricing
  systems
• Product costs establish the price floor
• Prices for comparable substitute products create
  the price ceiling

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Pricing Strategies

• Varies from country to country
• Different positioning, different life cycle
  stage, country specific competitive situation
• Market Skimming
• Charge a premium price and target global elite
• Occurs at the introduction stage of product life
  cycle (current examples?)
• Penetration Pricing
• Charge low price to penetrate market quickly
• Appropriate to saturate market prior to imitation
  by competitors

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Considerations for Setting Price

• Does the price reflect the products quality?
• Should firm pursue market penetration, market
  skimming, or some other pricing objective?
• Fit with product strategy, and
• Should prices differ with market segment?
• Is the price competitive given local market
  conditions?
• Is the price reasonable or exploitative?

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Considerations for Setting Price (cont.)

• What types of discounts or allowances should be
  offered to international customers?
• What pricing options are available if the firms
  costs increase or decrease? Is demand in the
  international market elastic or inelastic?
• Do the foreign countrys dumping laws pose a
  problem?

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Cost-based Pricing

• Based on an analysis of internal and external
  costs
• Full absorption cost method
• Direct and indirect manufacturing and overhead
  costs, and transportation etc.
• Rigid cost-plus pricing
• No regard to competitive conditions
• Leads to severe price escalation Under-priced
  and overpriced products
• Flexible cost-plus pricing
• Considers both cost and competitive conditions

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Terms of Sale

• Activities performed when good cross
  international borders
• Obtain export license if required
• Obtain currency permit
• Pack goods for export
• Transport goods to place of departure
• Prepare a land bill of lading
• Complete necessary customs export papers
• Prepare customs or consular invoices
• Arrange for ocean freight and preparation
• Obtain marine insurance and certificate of the
  policy

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Incoterms internationally accepted terms of trade

• FOB (free on board) sellers responsibility
  does not end until goods have actually been
  placed aboard ship
• CIF (cost, insurance, freight) named port of
  destination risk of loss or damage of goods is
  transferred to buyer once goods have passed the
  ships rail, but seller pays freight, and
  insurance
• CFR (cost and freight) seller is not
  responsible at any point outside of factory

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Gray Market Goods

• Trademarked products are exported from one
  country to another where they are sold by
  unauthorized persons or organizations
• Occurs when product is in short supply, when
  producers use skimming strategies in some
  markets, and when goods are subject to
  substantial mark-ups

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Potential for Gray Markets
Average Tokyo Shop America Product Retail
Price Catalog Price
Audio cassette 11 - 14 6 - 8 Auto-Reverse
Walkman 70 50 Braun Juicer 32 20 Canon Autoboy
Camera 260 180 Channel No. 5 (1/2
oz) 153 85 Compact disk 15 - 20 8 - 11 Lady
Remington shaver 86 46 Rolex watch 4,857 3,078
SOURCE Shop America LTD. as quoted in "Can This
Catalog Company Crack the Japanese Marketing
Mass?" Business Week, March 19, 1990, p. 60.
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Dumping

• Companies may be accused of dumping if the price
  of their product in foreign markets is-
• Lower than that normally charged in the domestic
  market or country of origin
• Lower than normal export prices
• To prove, both price discrimination and injury
  must be shown

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Countertrade

• Countertrade occurs when payment is made in some
  form other than money
• Options
• Barter
• Counterpurchase
• Offset
• Compensation trading
• Cooperation agreements
• Switch trading