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 unitFixed 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 $0.80 Jan 1Dec 31 $0.90 Avg Price Effect Margin = 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) Countertrade major forms of countertrade managing countertrade

Transfer Pricing Illustration

Types of Countertrade

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, Distributors Retailers Importer EuropeHong KongJapanNorth 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 Strategies Source: Gert Assmus and Carsten Wiese, “How to Address the Gray Market Threat Using Price Coordination,” Sloan Management Review, 36, no.3 (1995), pp reprinted by permission of publisher. ©1995 by the Sloan Management Association. All rights reserved. Economic controls Informal coordination FormalizationCentralization High Low Level of Marketing Standardization Strength of Local Resources

Chapter Fourteen Global Pricing MKT568 Global Marketing Management Dr. Fred Miller 3-1