Global Marketing Management A European Perspective Warren J. Keegan Bodo B. Schlegelmilch Global Pricing

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 2 Overview zEnvironmental Influences on Pricing Decisions zDifferent Approaches to International Price Setting zStandardisation vs. Differentiation zDumping zGrey Markets and Parallel Imports zTransfer Pricing zSummary

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 3 Learning Objectives zKnow about the complexity of international price setting zAppreciate which external and internal factors influence international pricing zLearn about different approaches to setting prices zBe aware of factors promoting or inhibiting international price standardisation zKnow how to react to dumping by competitors  Learn which key issues are involved in transfer pricing

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 4 Global Pricing: Important Concepts zRigid Cost-Plus Pricing and Flexible Cost-Plus Pricing zDynamic Incremental Pricing zPrice Corridor zDumping  Parallel Imports and Grey Markets zTransfer Pricing zPrinciple of Arm`s Length

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 5 Environmental Influences on Pricing Decisions (1) zCurrency Fluctuations yTwo positions: xFix prices in country target markets xFix prices in home-country currency yPricing should be consistent with the company`s marketing strategy zInflation yInflation is a persistent upward change in price levels yInflation requires periodic price adjustments

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 6 Environmental Influences on Pricing Decisions (2) zGovernment Controls and Subsidies yIn countries, which are undergoing severe financial difficulties, governments may restrict price increases or prescribe fixed prices zCompetitive Behaviour and Market Demand yPricing decisions are also dependent on the nature of demand and competitive action

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 7 Rigid Cost-Plus Pricing zAdding up all the costs required to get the product to where it is sold zAll costs incurred in getting a product to an international market are taken into account zCost-Plus Pricing sometimes ignores competitive conditions zRigid cost-plus pricing is mostly used by companies new to foreign business

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 8 Flexible Cost-Plus Pricing zFlexible cost-plus pricing is based on the same principle as rigid-cost plus pricing zHowever: Prices may vary, if the market situation requires (e.g. the nature of the customer, the size of the order or the intensity of local competition)

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 9 Dynamic Incremental Pricing zPrice setting practice which is based on the idea that fixed costs occur regardless of whether the company is successful or not zThe goal is to regain at least variable costs and international marketing and promotion costs in export ventures zThis strategy is also known as penetration pricing zPenetration pricing means that the product may be sold at a loss for a certain time to gain market share

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 10 Standardisation vs. Differentiation in International Pricing zIt is an important question whether prices should be standardised across markets or differentiated between international markets zCompanies do not act consistently zCross-subsidisation: a company uses financial resources from one area to compete in another area

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 11 Influences on Prices Standardisation vs. Differentiation Customer Preferences Competitive Situation CostSituation Inflation/Exchange Rates Regulations/ Tariffs and Duties Reduction of Trade Barriers Decreasing Transportation Costs Active Retailers/Grey Markets/GlobalSourcing Improved Communication and InformationFlow Increasing Brand Globalisation/ Standardisation OptimalPrices! Price Nivellation? FutureDevelopments External Drivers Market - Related Drivers External Drivers Company - Related Drivers Factors Driving Price Differentiation Factors Driving Price Standardisation

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 12 An International Price Corridor

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 13 Decision Making Framework for International Pricing

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 14 Dumping zA company exports a product at a price lower than the price it normally charges in its own home market zDumping is an important global pricing issue, because it is sometimes regarded as unfair competition zOrganisations like the WTO or OECD have issued guidelines how to treat these problematic situations

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 15 Grey Markets and Parallel Imports zDistribution of trademarked products in a country through channels unauthorised by the trademark owner zGrey marketers take advantage of price differences between markets by re-importing branded merchandise from low-price to high-price markets zParallel Imports reduce or cannibalise sales by authorised channel members in high-price countries

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 16 Transfer Pricing zPricing transactions between buyers and sellers that belong to the same corporation zThe approach used will vary with the nature of the firm: yCost-Based Transfer Pricing yMarket-Based Transfer Pricing yNegotiated Transfer Pricing

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 17 Tax Regulations and Transfer Prices zCompanies sometimes use transfer prices to shift profits from high-tax to low-tax countries zThe principle of arm`s length is a way of establishing a transfer price between company units. The price shall amount to what two independent, unrelated entities would negotiate

Keegan/Schlegelmilch Global Marketing Management: A European Perspective Chapter 12 / 18 Summary zThere are three different approaches to price setting yRigid-cost pricing yFlexible-cost pricing yDynamic incremental pricing zDumping refers to selling products in international markets at prices below those in the home country zGrey Markets zTransfer Pricing