Chapter global pricing. After studying this chapter you will be able to understand: The dynamic growth in the region, the importance and slow growth of Japan, the importance of the Bottom-of-the-Pyramid Markets, the diversity across the region, the interrelationships among countries in the region, the diversity within China.
GLOBAL MARKETING MANAGEMENT Seventh Edition MASAAKI KOTABKE | KRISTIAAN HELSEN Chapter 12 PowerPoint Global Pricing Chapter Overview Drivers of Foreign Market Pricing Managing Price Escalation Pricing in Inflationary Environments Global Pricing and Currency Fluctuations Transfer Pricing Global Pricing and Antidumping Regulation Price Coordination Chapter 12 Copyright © 2017 John Wiley & Sons, Inc Introduction • Global pricing is one of the most critical and complex issues in international marketing • Price is the only marketing mix instrument that creates revenues All other elements entail costs • A company’s global pricing policy may make or break its overseas expansion efforts • Multinationals also face the challenges of how to coordinate their pricing across different countries Chapter 12 Copyright © 2017 John Wiley & Sons, Inc Drivers of Foreign Market Pricing • Main drivers affecting global pricing: – Company Goals • Satisfactory ROI • Market Share • Specified Product Goal – Company Costs • Cost-Plus Pricing • Incremental Costs Chapter 12 Copyright © 2017 John Wiley & Sons, Inc Exhibit 12-1: Retail Price Comparison across Cities Chapter 12 Copyright © 2017 John Wiley & Sons, Inc Drivers of Foreign Market Pricing • Customer Demand • Competition – Cross-Border Price Differentials – Nonprice Competition • Distribution Channels – Variations in Trade Margins and Length of Margins – Issues of Everyday Low Prices (EDLP) – Parallel Imports (Gray Market) • Government Policies Chapter 12 Copyright © 2017 John Wiley & Sons, Inc Exhibit 12-3: Price Promotions in Chinese Cultures with End-8 Prices Chapter 12 Copyright © 2017 John Wiley & Sons, Inc Exhibit 12-4: Average Quarterly Sales and ExFactory Selling Prices of Antidepressants (1988, Q1−1999, Q1) Chapter 12 Copyright © 2017 John Wiley & Sons, Inc Managing Price Escalation • Options to lower the export price: Rearrange the distribution channel Eliminate costly features (or make them optional) Downsize the product Assemble or manufacture the product in foreign markets Adapt the product to escape tariffs or tax levies Chapter 12 Copyright © 2017 John Wiley & Sons, Inc Pricing in Inflationary Environments • Ways to safeguard against inflation: Modify components, ingredients, parts and/or packaging materials Source materials from low-cost suppliers Shorten credit terms Include escalator clauses in long-term contracts Quote prices in a stable currency Pursue rapid inventory turnovers Draw lessons from other countries Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 10 Exhibit 12-5: Retail Price Harley-Davidson Ultra Electric Glide (In US$ Equivalent) Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 12 Global Pricing and Currency Fluctuations • Currency Gain/Loss Pass Through (See Exhibits 12-5 and 12-6.) – Pass-through issue – Pricing-to-market (PTM) – Local-currency price stability (LCPs) • Currency Quotation Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 13 Exhibit 12-6: Exporter Strategies Under Varying Currency Conditions Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 14 Exhibit 12-7: A Numerical Illustration of Pass Through and Local Currency Stability Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 15 Exhibit 12-8: Pan-European Price Coordination Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 16 Transfer Pricing • Sales transactions between related entities of the same companies are called transfer prices • Determinants of Transfer Prices: Market conditions in the foreign country Competition in the foreign country Reasonable profit for foreign affiliate U.S federal income taxes Economic conditions in the foreign country Import restrictions Customs duties Price controls Taxation in the foreign country 10 Exchange controls Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 17 Transfer Pricing • Criteria for making transfer pricing decisions: – – – – – Tax regimes Local market conditions Market imperfections Joint venture partner Morale of local country managers Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 18 Transfer Pricing • Setting Transfer Prices: – Market-based transfer pricing: • Arm’s length prices – Nonmarket-based pricing: • Cost-based pricing • Negotiated pricing – Compliance with financial reporting norms, fiscal and custom rules, and anti-dumping regulations prompts use of market-based transfer pricing Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 19 Transfer Pricing – Government-imposed market constraints (e.g., import restrictions, price controls, exchange controls) favor nonmarket-based transfer pricing – Most firms use a mixture of market-based and nonmarket pricing procedures • Minimizing the Risk of Transfer Pricing Tax Audits: – Basic Arm’s Length Standard (BALS) Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 20 Global Pricing and Antidumping Regulation • Dumping occurs when imports are sold at an “unfair” price • To minimize risk exposure to antidumping actions, exporters might pursue any of the following marketing strategies: – Trading up – Service enhancement – Distribution and communication Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 21 Price Coordination • The following considerations will be necessary when developing a global pricing strategy: Nature of customers Amount of product differentiation Nature of channels Nature of competition Market integration Internal organization Government regulation Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 22 Price Coordination • Global-Pricing Contracts –GPCs Purchasers often demand GPCs from their suppliers – GPCs can also benefit suppliers – A GPC can offer the opening toward nurturing a lasting customer relationship – Small suppliers can use GPCs as a differentiation tool to get access to new accounts Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 23 Price Coordination • Aligning Pan-Regional Prices • A Pricing Corridor (to find the middle ground by upping prices in low-price countries and cutting them in high-price countries) works as follows: Step Determine optimal price for each country Step Find out whether parallel imports (“gray markets”) are likely to occur at these prices Step Set a pricing corridor (See Exhibit 12-8.) Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 24 Exhibit 12-9: Pan-European Price Coordination Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 25 Price Coordination • Implementing Price Coordination: Global marketers can choose from four alternatives to promote price coordination within their organizations: Chapter 12 Economic measures Centralization Formalization Informal coordination Copyright © 2017 John Wiley & Sons, Inc 26 ... Policies Chapter 12 Copyright â 2017 John Wiley & Sons, Inc Exhibit 1 2- 3: Price Promotions in Chinese Cultures with End-8 Prices Chapter 12 Copyright © 2017 John Wiley & Sons, Inc Exhibit 1 2- 4: Average... Wiley & Sons, Inc 12 Global Pricing and Currency Fluctuations • Currency Gain/Loss Pass Through (See Exhibits 1 2- 5 and 1 2- 6.) – Pass-through issue – Pricing-to-market (PTM) – Local-currency price... Step Set a pricing corridor (See Exhibit 1 2- 8.) Chapter 12 Copyright © 2017 John Wiley & Sons, Inc 24 Exhibit 1 2- 9: Pan-European Price Coordination Chapter 12 Copyright © 2017 John Wiley & Sons,