1 international marketing management session 10: international pricing
TRANSCRIPT
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INTERNATIONAL MARKETING MANAGEMENT
SESSION 10:
INTERNATIONAL PRICING
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ISSUES IN ESTABLISHING INTERNATIONAL PRICING POLICY
Use of Price as a Competitive Tool
Standardized vs. Differentiated Prices
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PRICING: BARRIERS TO STANDARDIZATION
Shipping and Transportation Costs, Tariffs
Income Levels, Price Sensitivity
Prices of Competing and Substitute Products
Trade Margins, Taxes, Price Regulation
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FACTORS COMPLICATING INTERNATIONAL PRICING DECISIONS
Foreign Exchange Risk: Changes in Value of One Currency vs. Another
HEDGING
Rates of Inflation
Lack of Foreign Exchange
BARTERING
Gray Markets
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PORTRAIT OF A DEAL
GOVERNOR of Yamal-NenetsRegion demands payment of
energy royalties from gasmonopoly GAZPROM.
1 GAZPROM, claiming to lackcash, offers to pay in gas.2
GOVERNOR asks barterspecialist, ANDREI TOLMACHEV,
to trade the gas for an airplane.3 TOLMACHEV then signs
contract with aircraftmanufacturer AVIACAR.4
AVIACAR, lacking cash, can’t buycomponents to make the plane. TOLMACHEV
trades more than 100 cars, tractors, and busesto acquire a $2 million engine and swaps$250,000 of electricity and tires to secureelectrical equipment from different companies.
5GOVERNOR gets hisplane six months after
the transaction begins.TOLMACHEV earns acommission equal to 10%of the $17 million plane.
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GRAY MARKETS
DEFINITION
Branded or trade-marked product sold through unauthorized distribution channels triggered by price differentials between countries
POSITIVE CONSEQUENCES
Taps Price-Sensitive Customers
NEGATIVE CONSEQUENCES Damage to Trademark/Quality Image Legal Liabilities -- Warranties, etc. Strained Channel/Distributor Relations Disruption of Global Marketing Strategy
STRATEGIES TO COUNTERACT GRAY MARKETS Price Cutting Differentiate Product Model, Warranties, etc. Cutoff/Control Supply Promote Gray Market Product Limitations
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COST-BASED PRICING
COSTS
Production
Freight and Packaging
Handling and Processing Costs
DUTIES
Import Duties
Custom Duties
MARGINS
Importer Margins
Distribution Margins
PRICE ESCALATION
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NON-COST FACTORS TO CONSIDER IN INTERNATIONAL PRICING
DEMAND
Price Sensitivity
Modes of Payment
Quality and Prestige Associations
COMPETITION
Prices of Competing and Substitute Products
Competitor Reaction
DISTRIBUTION
Availability of Certain Outlets/Discounters, etc.
Regulation of Retail/Wholesale Margins and Prices
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ONE CAR, SO MANY PRICES
Prices for a Volkswagen Golf*
BRITAIN $13,040
FINLAND 8,290
FRANCE 10,510
GERMANY 11,040
ITALY 10,690* Excludes taxes
DATA: EUROPEAN UNION
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United States*** $2.54 2.54Argentina Peso2.50 2.50 0.98 1.00 -2Australia A$3.00 1.52 1.18 1.98 -40Brazil Real3.60 1.64 1.42 2.19 -35Britain £1.99 2.85 1.28** 1.43** 12Canada C$3.33 2.14 1.31 1.56 -16Chile Peso1260 2.10 496 601 -17China Yuan9.90 1.20 3.90 8.28 -53Czech Rep Koruna56.00 1.43 22.00 39.0 -44Denmark DKr24.75 2.93 9.74 8.46 15Euro area 2.57 2.27 0.99 € 0.88 € -11 France FFr18.5 2.49 7.28 7.44 -2 Germany DM5.10 2.30 2.01 2.22 -9 Italy Lire4300 1.96 1693 2195 -23 Spain Pta395 2.09 156 189 -18Hong Kong HK$10.70 1.37 4.21 7.80 -46Hungary Fo399 1.32 157 303 -48Indonesia Rupiah14700 1.35 5787 10855 -47Japan 294 2.38 116 124 -6Malaysia M$4.52 1.19 1.78 3.80 -53Mexico Peso21.9 2.36 8.62 9.29 -7New Zealand NZ$3.60 1.46 1.42 2.47 -43Philippines Peso 59.00 1.17 23.2 50.3 -54Poland Zloty5.90 1.46 2.32 4.03 -42Russia Rouble35.00 1.21 13.8 28.9 -52Singapore S$3.30 1.82 1.30 1.81 -28South Africa Rand9.70 1.19 3.82 8.13 -53South Korea Won3000 2.27 1181 1325 -11Sweden SKr24.0 2.33 9.45 10.28 -8Switzerland SFr6.30 3.65 2.48 1.73 44Taiwan NT$70.0 2.13 27.6 32.9 -16Thailand Baht55.0 1.21 21.7 45.5 -52
The Hamburger StandardThe Hamburger Standard Under (-)/ over (+) valuation Local Currency Dollars Implied PPP* Actual $ exchange against the of the dollar rate 17/04/01 dollar %
Under (-)/ over (+) valuation Local Currency Dollars Implied PPP* Actual $ exchange against the of the dollar rate 17/04/01 dollar %
Big Mac PricesBig Mac Prices
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*Purchasing-power parity: local price divided by price in United States***Average of New York, Chicago, San Francisco and Atlanta ** £ Dollars per pound € Dollars per Euro
Source: McDonald’s; The Economist
*Purchasing-power parity: local price divided by price in United States***Average of New York, Chicago, San Francisco and Atlanta ** £ Dollars per pound € Dollars per Euro
Source: McDonald’s; The Economist
YenYen
RR
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SUMMARY
Aggressive Pricing as Difficult to Sustain
Difficult to Standardize Pricing Internationally
Importance of Considering Demand, Competition and Infrastructure Factors