INTERNATIONAL MARKETING: Lecture 7

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INTERNATIONAL MARKETINGLecture 7

• International pricing decisions
• Gregor Pfajfar
• March 2009

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Different prices in different distribution
channels
in
Source Presentation Zinocker, Simon, Kucher
Partner, dec.2006.
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Big mac index

• Having trouble keeping track of currency
  fluctuations?
• The Economist tracks the average price of a
  McDonalds Big Mac across the globe to give you a
  feel for whether a currency is under- or
  over-valued.

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The pivotal role of price in marketing exchanges
CUSTOMER
PRODUCER
Money Time Cognitive activity Behavior effort
Production Promotion Distribution Marketing
research


Value
Profit


Price willing to pay
Price willing to sell
Marketing exchange
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Case study Harley Davidson

• Describe the HDs general pricing strategy. What
  does the companys positioning have to do with
  its pricing strategy?
• Should Harley alter its price, given the strong
  price pressures from rivals?
• What should HD do to improve its market share in
  Europe?

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Strategic pricing decisions
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Pricing

• Only area of global marketing mix where policy
  can be changed rapidly without large direct cost
  implications
• Decisions in global markets are affected by
  complexity of influential factors

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International pricing framework
Firm-level factors
Environmental factors
Product factors
Market factors
Other elements
Pricing strategies
Terms
Firm performance
Source Hollensen, Global marketing, 4e, 2008.
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Internal factors affecting international pricing
decisions

• Firm-level factors
• Corporate and marketing objectives
• Competitive strategy
• Firm positioning
• Product development
• Production location
• Market entry modes

• Product factors
• Stage in PLC
• Place in product line
• Most important product features
• Product positioning
• Product cost structure

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External factors affecting international pricing
decisions

• Environmental factors
• Government influences and constraints
• Inflation
• Currency fluctuations
• Business cycle stage

• Market factors
• Customers perceptions
• Customers ability to pay
• Nature of competition
• Competitors objectives, strategies, strengths
  and weaknesses
• Grey market appeal

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International price corridor
Source Hollensen, Global marketing, 4e, 2008.
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Special issues in international pricing

• What influences the height of international
  prices?
• Currency
• International commercial terms
• Financial terms
• Terms of payment

• Price escalation
• Skimming
• Market pricing
• Penetration pricing
• Experience curve pricing
• Bundle pricing
• Transfer pricing

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Delivery terms INCOTERMS 2000

• 1. E group EXW (Ex-works)
• 2. F group FCA (Free carrier), FAS (Free
  alongside ship), FOB (Free on board)

seller
buyer



transfer of costs and risk



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Delivery terms INCOTERMS 2000

• 3. C group CFR (Cost and freight), CIF (Cost,
  insurance, and freight), CPT (Carriage paid to),
  CIP (Carriage and insurance paid to)
• 4. D group DAF (Delivered at frontier), DES
  (Delivered ex-ship), DEQ (Delivered ex-quay), DDU
  (Delivered duty unpaid), DDP (Delivered duty
  paid)

seller
buyer



transfer of costs and risk

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Different terms of payment
Source Hollensen, Global marketing, 4e, 2008.
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The process for handling letters of credit
Source Hollensen, Global marketing, 4e, 2008.
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Export financing

• Commercial banks
• Export credit insurance
• Factoring
• Forfeiting
• Bonding

• Leasing
• Counter-trade
• Barter
• Compensation deal
• Buy-back agreement

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Strategic alternatives in international pricing
1. Standardization 2. Differentiation

• Skimming
• Penetration

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Structural factors of standardized versus
differentiated pricing
Source Hollensen, Global marketing, 4e, 2008.
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Case study Gillette

• Evaluate the price-level of Gillettes Fusion
• Discuss whether it is possible for Gillette to
  standardize pricing across borders for their new
  5-blade, Fusion.
• Which factors would favour price standardization
  and which factors would favour price
  differentiation?

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A taxonomy of international pricing practices
High Low
3 Multilocal price setter
4 Global price leader
Preparedness for internationalization
1 Local price follower
2 Global price follower
Multilocal markets
Global markets
Industry globalism
Source Hollensen, Global marketing, 4e, 2008.
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Initiating and responding to price changes

• Initiating price cuts implies the risk of
• Low quality trap
• Fragile market share trap
• Shallow pocket trap
• Initiating price increases
• Cost inflation
• Anticipatory pricing
• Overdemand
• Delayed quotation pricing
• Escalator clauses
• Unbundling
• Reduction of discounts

• Reactions to competitors price changes
• Maintain price
• Maintain price and add value
• Reduce price
• Increase price and improve quality
• Launch a low-price fighter line

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How to fight a price war?
Source Rao, Bergen, Davis (2000). How to fight a
price war, Harvard business review, pp. 107-116.