Chapter 11:

Pricing Decisions

Overview

• In general, two basic factors determine the boundaries within which prices should be set.  

  • The first is product cost, which establishes a price floor, or minimum price.

  • Second, prices for comparable substitute products create a price ceiling, or maximum price. In many instances, global competition puts pressure on the pricing policies and related cost structures of domestic companies. The imperative to cut costs – especially fixed costs- is one of the reasons for the growth of outsourcing. In some cases, local market conditions such as low incomes force companies to innovate by creating new products that can be profitably sold at low prices.

• Between the lower and upper boundary for every product there is an optimum price, which is a function of the demand for the product as determined by the willingness and ability of customers to buy.

• This chapter reviews the basic pricing concepts, and then discusses several pricing topics that pertain to global marketing. In the second half of the chapter, we will discuss gray market goods, dumping, price fixing, transfer pricing, and countertrade.

Chapter Overviews, Outlines, Sample Questions

1. Introduction to Global Marketing

2. The Global Economic Environment

3. Regional Market Characteristics and Preferential Trade Agreements

4. Social and Cultural Environments

5. The Political, Legal, and Regulatory Environments

6. Global Information Systems and Market Research

7. Segmentation, Targeting, and Positioning

8. Importing, Exporting, and Sourcing

9. Global Market Entry Strategies: Licensing, Investment,
   and Strategic Alliances

10. Brand and Product Decisions In Global Marketing

11. Pricing Decisions

12. Global Marketing Channels and Physical Distribution

13. Global Marketing Communications Decisions I: Advertising
    and Public Relations

14. Global Marketing Communications Decisions II: Sales Promotion,
    Personal Selling, Special Forms of Marketing Communication

15. Digital Revolution

16. Strategic Elements of Competitive Advantage

17. Leadership, Organization, and Corporate Social Responsibility

Lecture Outline

Discussion Questions
 

1.

What are the basic factors that affect price in any market? What considerations enter into the pricing decision?
 

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2.

Define the various types of pricing strategies and objectives available to global marketers.
 

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3.

Identify some of the environmental constraints on global pricing decisions.
 

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4.

Why do price differences in world markets often lead to gray marketing?
 

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5.

What is dumping? Why was dumping such an important issue during the Uruguay Round of GATT negotiations?
 

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6.

What is a transfer price? Why is it an important issue for companies with foreign affiliates? Why did transfer pricing in Europe take on increased importance in 1999?

 

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7.

What is the different between ethnocentric, polycentric, and global pricing strategies? Which one would you recommend to a company that has global market aspirations?
 

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8.

If you were responsible for marketing CAT scanners worldwide (average price, $1,200,000) and your country of manufacture was experiencing a strong and appreciating currency against almost all other currencies, what options are available to you to maintain your competitive advantage in world markets?
 

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9.

Compare and contrast the different forms of countertrade.

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Test your knowledge
 

Price can be used as a ...

1.

strategic variable to achieve specific goals, including ROI (return on investment), profit, and rapid recovery of product development costs.

True

2.

competitive weapon to gain or maintain market position.

True

False

3.

  True

  False

A market penetration pricing strategy calls for setting price levels that are high enough to quickly build market share.

4.

  True

  False

When Apple introduced iPhone in the United States in the summer of 2007 with a sale price of $ 599
it used skimming pricing strategy.

Suppose the Japanese yen is weak in relation to the U.S. dollar.

5.

Japanese firms should be able to stress price benefits for products exported to the U.S.

True

6.

Not able to stress the price benefits, Japanese companies exporting to the U.S. should then emphasize quality improvements and after-sales service.

True

False

7.

  True

  False

Hewlett-Packard is the world's leading marketer of inkjet printers. H-P's printers are priced very low and margins are slim; by contrast, the company enjoys healthy margins on sales of replacement ink cartridges. This approach is sometimes known as "razors and blades" pricing.

"Market skimming"  ...

8.

is a strategy that uses low prices as a competitive weapon to gain market position.

True

9.

pricing strategy is a part of a deliberate attempt to reach a market segment that is willing to pay a premium price for a particular brand or for a specialized or unique product.

True

False

10.

  True

  False

If a firm without much export experience uses the rigid cost-based pricing method, it is probably ignoring the possibility that its products may not be very competitive in the local market.