MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 1 GLOBAL PRICING ISSUES Price--definition Applicability of price research outside U.S./Western Europe Pricing issues in international trade Pricing under “hard” currency scarcity

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 2 Approaches to Pricing Cost based –“Cost-plus” –Marginal cost for new market –Experience based costing Prestige pricing Market based pricing (demand) Perceived customer value

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 3 Reasons for Cost Declines With Volume Experience curves Economies of –Scale –Scope Spreading R&D costs over more units Lower costs of operating in other markets –Labor costs –Costs of other resources

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 4 Experience Curves Experience apart from economies of scale and volume buying power 80% vs. 64% experience curves (actual numbers will vary depending on specifics) Costs of initial units are very high and not very meaningful With time, subsequent declines in cost take longer 80% 64%

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 5 The Role of Cost PRICE CONSIDERED INVESTMENT IN SPECIAL VALUE MARKET PRICES FOR SIMILAR VALUE CUSTOMER VALUE LOWER COST THROUGH VOLUME PRODUCTION AND MARKETING COST VALUE > COST + PROFIT? VALUE > DIFFERENTIAL FROM LOWER COST ALTERNATIVE? PRICE OFFERING IF VIABLE

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 6 Financial Issues Currency of transaction –One side will face exchange rate risks –Costs of hedging and futures contracts –Currency convertibility and repatriability Transfer prices between subsidiaries –Fairness of evaluation –Tax consequences  need for “arms length” transaction

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 7 Price and Positioning Strategies –Market brand –Value brand –Prestige brand Impact of Product Life Cycle (PLC) Cross-market spillover Policies –Polycentric (price set for each set of markets) –Geocentric (global policy but individual mark-up decisions) –Ethnocentric (same price across countries)

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 8 “Gray” Trade “Gray” vs. “black” markets –Parallel importing –Re-importing (e.g., U.S. pharmaceuticals) Legality Diversion to higher cost markets (arbitrage) “Consumer tourism”—forms –Limited quantities –Trip made for purchase of bringing back materials –“Nominal” travel to legitimize purchase Manufacturer response

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 9 Counter Trade Barter Compensation deals Counter purchases Product Buy-Back

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 10 Effects of the Euro Stable “exchange rates” Easier comparability of prices across countries May have served as sign of international competitive pressures Changing prices to the Euro –Possible opportunity for price increase –Rounding issues –Highly visible and “institutionalized” prices –Concerns about competitor strategies

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 11 Distribution Transportation logistics Role of channel members –customs –legal restrictions Structure of channels Legal issues Infrastructure issues

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 12 Retailers--Formats Level of –service –assortment Tradition of where merchandise is sold Location and convenience (Inter)national vs. local chains

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 13 Global Retailing Increasing presence of international retailers across countries –Outright entry –Acquisition of local chains continued under the original name and position May be able to take advantage of cross- market –Bargaining power –Economies of scale Balance with local sourcing

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 14 Legal Constraints on Retailing Restricted store hours Regulation of assortment Preferences for small retailers Product uniformity Price maintenance/ selective discounts

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 15 Parallel Distribution “Gray” market vs. counterfeiting Gray markets--diversion from –authorized to unauthorized dealers within a country –lower cost areas (e.g., Mercedes Benz from Europe to U.S.) –temporary promotions in one region –highly taxed areas (usually through tourist purchases)

MKTG 769 PRICING AND DISTRIBUTION Lars Perner, Instructor 16 Effects of Gray Trade Brand equity Relationships with established dealers Legal liabilities Complication of marketing strategies