GLOBAL PRICING

Lee & Carter; Keegan & Bhargava

Pricing
Price- intrinsic worth/value of a companys
offering (product/service)
Basic factors that determine the boundaries of
price:
Product cost (floor price)
Competitive price (ceiling price)
Optimum price

The interplay of the above factors is reflected

in pricing policies of companies

Pricing Objectives
Rate of return on investment
Cost-oriented e.g. oil and gas

Competition matching or prevention

Competition based pricing e.g. commodities or lower than competition to
prevent competitive entry

Market share/Market penetration

Demand-led pricing or geographical pricing: low when product is in plentiful
supply, least cost sourced or to get product established e.g. Chinese made
umbrellas

Market skimming
Demand-led pricing: high when product is in short supply or new to market
e.g. Nintendo Wii

Product differentiation
Market or product in use pricing e.g. cars

Early cash recovery

Promotional pricing, price discounting, or allowance where liquidity is an
issue, markets are uncertain, or the product is in maturity

Market Skimming
Deliberate attempt to reach a segment that is
willing to pay a premium price
Often used in introductory phase of product
life cycle
Goal is to maximize revenue on limited
volume & reinforce customers perception
of high product value

Penetration Pricing
Uses price as a competitive weapon to gain
market position
Practiced by many companies in Pacific Rim
Means that the product may be sold at a loss for a
certain time to gain market share
Companies new to exporting cannot absorb such
losses

The Global Price Setting Decision Process

Factors affecting Global Pricing

Environmental Influences on Pricing

Decisions (1)
Currency Fluctuations
Two positions:
Fix prices in country target markets
Fix prices in home-country currency

Pricing should be consistent with the company`s

marketing strategy

Environmental Influences on Pricing

Decisions (2)
Exchange Rate Clause
Allows the buyer & seller to agree to supply &
purchase at fixed prices in each companys
national currency
Designed to protect both from unforeseen large
swings in currencies

Environmental Influences on Price

Decisions (3)
Inflationary Environment
Require periodic adjustments due to rising costs
Must maintain operating profits
LIFO last in first out is more appropriate

Environmental Influences on Pricing

Decisions (4)
Government Controls & Subsidies
In countries with severe financial difficulties, governments
may restrict price increases or prescribe fixed prices

Competitive Behaviour
Pricing decisions are also dependent on the nature of demand
and competitive action

Gray Goods
Trademarked products that are exported
form one country to another where they are
sold by unauthorized persons or
organizations
Bring a product produced in one country
into another in competition with authorized
importers parallel importing

Dumping
A company exports a product at a price lower than the
price it normally charges in its own home market
Dumping is an important global pricing issue, because it
is sometimes regarded as unfair competition
Organisations like the WTO or OECD have issued
guidelines how to treat these problematic situations

Transfer Pricing
Pricing transactions between buyers and sellers that
belong to the same corporation
The approach used will vary with the nature of the firm:
Cost-Based Transfer Pricing
Market-Based Transfer Pricing
Negotiated Transfer Pricing

Global pricing strategies

Extension/ethnocentric
Price is the same around the world
Importer absorbs freight & import duties

Adaptation/polycentric
Permits subsidiary to establish price
Invention/geocentric
Strikes an intermediate position

Key Features of Global Pricing Strategy

Thank you