Chapter Fourteen Global Pricing

Chapter Fourteen Global Pricing

MKT568

Global Marketing Management

Dr. Fred Miller

3-1

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

$.75

Direct

$.75

$.25

Full

$.90

Offer

Variable cost per unit Fixed cost per unit

Do we accept this offer?

Experience Curve Illustration

$1.25

Year 3

$0.80

Year 6

$1.00

Year 5

Experience Curve Effect A doubling of cumulative volume

reduces avg unit cost by 20%

Year 1

Experience Curve Illustration

$1.00 $1.00

$0.80

Jan 1 Dec 31

$0.90

Avg

Price EffectMargin = 40% RoS$1.67

$1.50

Cost Effect

Year 6

Experience Curve Illustration

$1.25

Year 3

$0.80

Year 6

$1.00

Year 5

Experience Curve Effect A doubling of cumulative volume

reduces avg unit cost by 20%

$0.64

Year 7

$0.72

Year 7 Avg

$1.20$1.50

Year 1

Pricing Decision Factors

Transfer pricing - definition, goals, methods

Systems pricing - bundle or unbundle

Price and positioning - price/quality, PLC (skimming/penetration)

Countertrademajor forms of countertrade

managing countertrade

Transfer Pricing Illustration

Tax Rate = 50% Tax Rate = 25%Cost = 20$ Price = 120$

Transfer Price = 70$

Income Statement Income Statement

Sales = 70$ Sales = 120$ Cost = 20$ Cost = 70$ Gross Margin = 50$ Total Margin = $100 Gross Margin = 50$

Taxes = 25$ Taxes = 13$ Net Margin = 25$ Net Margin = 38$

Total Profit = 63$

Types of CountertradeTypes 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.

Seiko’s Authorized and Unauthorized Channels of Distribution

Seiko’s Authorized and Unauthorized Channels of Distribution

14-8

Source: Jack Kaikati, “Parallel Importation: A growing Conflict in International Channels of Distribution,” Symposium on Export-Import Interrelationships, Georgetown University, November 14-15, 1985.

Distributors Distributors Distributors Distributors

Retailers Retailers Retailers Retailers

Importer Importer Importer

Europe Hong Kong Japan North America

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

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

Coordinated Pricing StrategiesCoordinated Pricing Strategies13-11

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.

Economic controls Informal coordination

FormalizationCentralization

High

High

Low

Low

Level of Marketing Standardization

Strength of Local Resources

Chapter Fourteen Global Pricing

Chapter Fourteen Global Pricing

MKT568

Global Marketing Management

Dr. Fred Miller

3-1