Pricing Decisions Keegan’s four steps to global pricing strategy

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Presentation transcript:

Pricing Decisions Keegan’s four steps to global pricing strategy General pricing strategies Problems with pricing for multinational markets Problems with foreign currency and economic conditions Grey markets

Global Pricing Strategies - Four Steps 1 Determine the price elasticity of demand (Inflexible demand will allow for a higher price) 2 Estimate fixed and variable manufacturing costs (product adaptation costs must be calculated) 3 Identify all costs associated with the marketing programme 4 Select the price that offers the highest contribution margin Warren J. Keegan (1995)

Market skimming Market penetration Market holding Cost-plus pricing Pricing Strategies Market skimming Market penetration Market holding Cost-plus pricing

Market Skimming - Sony Betamax Harvey Schein, President - $1,295 at launch!

Market Penetration - Daewoo ‘blitz’ the market

Market Holding Maintain their share of the market Currency fluctuations often trigger price adjustments Price adjustments can mean lower, or no profit margin strong home currency could mean manufacturing/licensing abroad

Cost-plus Adds-up all cost of production (and shipping) Easy to make quotes Ignores demand and competitive pricing in target market Consumer and competitor value issues must always considered in a rational pricing strategy

Problems of multinational pricing Co-ordination across various markets? Do we maintain a ‘uniform’ pricing policy across markets? How to transfer price between and across markets? E.g. Sandvik (Sweden) Parallel imports or ‘Grey’ markets?

Problems with foreign currency and economic conditions Which currency for pricing in international markets? How to deal with fluctuating exchange rates? Strategies for high inflation rates?

Grey Markets Products must be available internationally (as products are standardised in global markets) Low trade barriers (tariffs, legal restrictions, transport costs) Price differentials must be great enough (so that grey marketers can make a profit) Duhan and Sheffet (1988)