IMKT- PRICING DECISIONS

Basic concepts of pricing:International trade lower price

Law of one price
Role of marketing managers
Pricing strategy- diff. Across globe
Example: Stella Artois- low priced, everyday, Belgium brand export quality

GLOBAL PRICING OBEJECTIVES AND STRATEGIES

Pricing objectives may differ on a Product’s life cycle, and the country specific competitive
situation
The global managers must develop systems and policies that address:Price floor
Price ceiling
Optimum prices
Must be consistent with global opportunities and constraints
Internet price transparency

Various Roles in int. Pricing

Internal groups may have conflicting price objectives
Division VPs, regional executives, and country managers are each concerned about
profitability at their respective Organizational level
The controller. And Financial VP are concerned about profits.
The manufacturing VPs seeks long production runs for maximum manufacturing efficiency.
The tax managers is concerned about regulations regarding transfer pricing.
Managers must determine the objectives for pricing:
-Unit Sales
-Market Share
-ROI
They must then develop strategies to achieve those objectives:
-Penetration Pricing
-Market Skimming

Market Skimming
-charging a premium price
-may occur at the introduction stage of a product life cycle
-luxury goods marketers use it to differentiate products
-by setting a high price, demand is limited to innovators and early adopters who are willing
and able to pay the price
-when the product enters the growth stage of the life cycle and competition increases,
manufacturers start to cut prices.
-this strategy has been used consistently in consumer electronics industry. Like: Sony

Penetration Pricing and Non Financial Objectives:-price can be used as a competitive weapon
to gain or maintain market position
-charging a low price in order to penetrate market quickly
-appropriate to saturate market prior to imitation by competitors
-scale efficient plants and low cost labour allowed these companies to blitz the market
-penetration pricing often means that the product may be sold at a loss for certain period of
time
-example packed food

Companion Products Pricing:

-product whose sale is dependent upon the sales of primary product
-companion products pricing has long been the preference strategy of Vodafone, AT&T,
AND other cellular service providers
-cellular service providers subsidise the phone and make money on calling plans.

Target Costing Process:

-target costing ensures that Development teams will bring profitable products to market not
only with the right level of quality and functionality but also with appropriate prices for target
customer segment. The price is set based on the willingness of customer to pay.
-this strategy was evolved in Japan
-toyota, Sony, Olympus and komatsu are some of the well known Japanese companies that
use target costing
-the target costing process begins with market mapping and product definition and
positioning

The marketing team must do:(target costing)

-determine the segment(s) to be targeted, as well as the prices that customers are willing to
pay in the segment
-using market research techniques such as conjoint analysis, the team seeks to better
understand how customer will perceive product features and functionalities
-compute overall target costs with the aim of ensuring the company’s future profitability
-obey the cardinal rule: if the design team can’t meet the target the product should not be
launched

Cost Pricing and Export Price Escalation:

-export price escalation is the increase in the final selling price of the goods traded across
borders that reflects factors (tariffs, distribution channel, unexpected delays)
-cost based pricing is based on an analysis of internal and external cost
⁃ Firms using the western accounting principles use Full Absorption Cost Method: per
unit product costs are the sum of all past or current direct and indirect manufacturing and
overhead costs

Rigid Cost Pricing: means that companies set prices without regard to that pricing
considerations
⁃ Firms that use cost plus pricing do not take into account the conditions outside of the
home country
⁃ The obvious advantage of rigid cost based pricing is simplicity
⁃ The disadvantage is that this approach ignores demand and competitive conditions in
target markets, the risk is that prices will either be set too high or too low
⁃ This method is attractive to inexperienced exporters who are often simply testing the
market or responding to market in queries rather than being proactive

Flexible Cost plus Pricing method: it ensures that prices are competitive in the contest of the
particular market environment
⁃ Cost plus pricing sometimes incorporates the estimated future cost method to
establish the future cost for all component elements

When goods cross International boundaries?

⁃ Obtain export license
⁃ Obtain currency permit
⁃ Pack goods for export
⁃ Transport goods for departure
⁃ Prepare bill of lading
⁃ Complete necessary custom export papers
⁃ Prepare customs or consular invoices
⁃ Arrange for ocean freight and preparation
⁃ Obtain marine insurance and certificate of the policy

INCOTERMS
⁃ Universally recognised set of definitions of international trade terms
⁃ Recognised by courts and other authorities
⁃ Define the trade contract responsibilities and liabilities between buyer and seller
⁃ Updated regularly to keep pace with changes and development in International trade

Purpose of Incoterms
⁃ Designed for parties of contract
⁃ Provides set of international rules for foreign trade
⁃ Reduces uncertainties
⁃ Avoids different interpretations in different countries
⁃ Additional costs and time can be avoided

The TERMS:
⁃ The “E Term” is the term in which seller’s obligations is at its minimum
⁃ The “F Term” require the seller to deliver as instructed by the buyer
⁃ The “C Term” require the seller to contract for the carriage at his expense
⁃ The “D Term” signifies arrival contracts

Ex-works - seller places goods at the disposal of the buyer at the time specified in the
contract, buyer takes the delivery at the premises of the seller and bears all risks and expenses
from that point on.

Delivery duty paid - seller agrees to deliver the goods to the buyer at the place he/she names
the country of import with all costs, including duties, paid
FAS (free alongside ship) named port of destination- seller places goods alongside the vessel
or other mode of transport and pays all charges upto that point

FOB (free on board) - seller’s responsibility does not end until goods have been placed
aboard ship

CIF (cost, insurance, freight) - named port destination , risk of loss or damage of goods is
transferred to buyer once the goods have passed the ship’s rail

CFR (cost and freight) - seller is not responsible at any point outside factory

Environmental Influences on Pricing Decisions:

⁃ Global marketers must deal with a number of environmental considerations when
making pricing decisions
⁃ Among them currency fluctuations, inflation, government controls and subsidies , and
competitive Behaviour.
Currency fluctuations:
⁃ In global marketing, fluctuating exchange rates complicate the task of setting prices
⁃ Management faces different decision situations, depending on whether currencies in
key markets have strengthened or weaken relative to home country currency
⁃ A leaking of the home country currency swing exchange rates in favourable direction
⁃ A producer in weak currency country can choose to cut export prices to increase
market share or maintain its prices and reap healthier profit margins
⁃ It is a different situation when a company’s home currency strengthens; this is an
unfavourable turn of events for typical exporters because overseas revenues are reduced when
translated into home currency

GOVT. CONTROLS, SUBSIDIES AND REGULATIONS

The types of policies and regulation that affect pricing decisions are:
⁃ Dumping legislation
⁃ Resale price maintenance legislation
⁃ Price ceilings
⁃ General reviews of price levels

Dumping is a process where a company exports a product at a price lower that the price it
normally charges in its home country

RPM- the practice whereby a manufacturer and its distributors agree that the distributors will
sell the manufacturer’s product at certain prices (rpm ), at or above a price floor (minimum
resale price maintenance) or at or below price ceiling (max rpm)

Price Ceiling - is a situation where prices are charged more than the equilibrium price level

Competitive Behaviour
⁃ Pricing decisions are bounded not only by costs and the nature of demand but also by
competitive actions
⁃ If competitors do not adjust their prices in response to rising cost it is difficult to
adjust your pricing to maintain operating margins.
⁃ If competitors are manufacturing or sourcing in a lower cost country, it may be
necessary to cut prices to stay competitive.

Using sourcing as a Strategic Pricing Tool

⁃ Marketers of domestically manufactured finished products may move to offshore
sourcing of certain components to keep costs down and prices competitive
⁃ China “the world’s workshop”
⁃ Rationalise the distribution n system
⁃ RATIONALISATION may include selecting new intermediaries, assigning new
responsibilities to old intermediaries or establish direct marketing

Global Pricing: Three Policy Alternatives

⁃ Extension or Ethnocentric
⁃ Adaptation or Polycentric
⁃ Geocentric

ADAPTATIPN OR POLYCENTRIC
⁃ Permits affiliate managers or independent distributors to establish price as they feel is
most desirable in three circumstances
⁃ There is no requirement that prices be coordinated from one country to the next
⁃ Price depend in part on local factors such as competitors, wages, taxes and advertising
rates

GEOCENTRIC
⁃ More dynamic and proactive than the two
⁃ Geocentric prices neither fixes a single price worldwide, nor allows subsidiaries or
local distributors to make independent pricing decisions
⁃ Recognises that several factors are relevant for pricing decisions: local costs, income
level, competition and local marketing strategy

Grey Market Goods

⁃ Trademarked products are exported from one country to another where they are sold
by unauthorised person or organisation
⁃ Occurs when profit is in short supply, when producers use skimming strategies in
some markets, and when goods are subject to substantial mark-ups
⁃ Parallel importing, occurs when companies employ a poly centric , multinational
pricing policy that calls for setting different price in different country markets
⁃ The internet is emerging as a powerful tool that allows grey marketers to access
pricing information and reach customers
Price Fixing: in most instances, it is illegal for representatives of two or more companies t0
secretly set similar prices for their products.
This practice is known as price fixing, generally held to be an anticompetitive act.
Horizontal Pricing Fixing : occurs when competitor within an industry that make and market
the same product to conspire to keep high prices.

Vertical Price Fixing : occurs when a manufacturer conspires with wholesaler/retailer to

ensure certain retail prices are maintained.

Transfer Pricing: refers to the pricing of goods, services and intangible property bought and
sold by operating units or divisions of the same company.

Counter Trade
Barter Trade

GLOBAL MARKETING CHANNELS AND PHYSICAL

DISTRIBUTION
Marketing channels exist to create utility for customers:
⁃ PLACE UTILITY: availability of a product or service in a location that is convenient
to a potential customer
⁃ TIME UTILITY: availability of a product or service when desired by a customer
⁃ FORM UTILITY: availability of the product processed, prepared, in proper condition
and/or ready to use
⁃ INFORMATION UTILITY : availability of answers to questions and general
communication about useful product features and benefits

Distribution Channel: Terminology and Structure

⁃ Distribution: is the flow of goods through channels
⁃ Channels are made up of coordinated groups of individuals or firms that performs
functions that add utility to a product or service
⁃ In business to consumer marketing (B2C), consumer channels are designed to put
products in the hands of people for their own use
⁃ By contrast, business to business channel (B2B) involves industrial channels that
deliver products to manufacturers or other organisations that use them as input in production
process or day to day operations.
⁃ Distributors: wholesale intermediaries that typically carries product lines or brands
on selective basis
⁃ Agent : an intermediary who negotiates transactions between two or more parties but
does not take title to the goods being purchases or sold]

Peer to Peer Selling

⁃ The internet and related forms of new media are dramatically altering the distribution
landscape
⁃ eBay pioneered the peer to peer Marketing (p to p) model whereby individual
consumers market products to other individuals

Door to Door Selling

⁃ Low cost, mass market non durable products and certain services can be sold door to
door via direct sales force
⁃ This innovative channel strategy was so successful that domestic Chinese companies
such as People’s Insurance and Ping an Insurance copied it

CONSUMER CHANNELS
⁃ Manufacturer owned stores/independent franchise (NIKE, APPLE)
⁃ Independent Retailers
⁃ Flagship retail stores for Apple, Sony, well known fashion houses, Nokia, Nike and
etc. to build brand loyalty, showcase products and help gather marketing intelligence

Piggyback Marketing
⁃ Channel innovation that has grown in popularity
⁃ One manufacturer distributes product by utilising another company’s distribution
channel
⁃ Requires that the combined product lines be complementary and appeal to the same
customer

Establishing Channels
⁃ Direct involvement- the company establishes its own sale force or operates its own
retail stores
⁃ Indirect involvement: the company utilises independent agents, distributors and/or
wholesalers
⁃ Channel strategy must fit the company’s competitive positioning and Marketing
objectives within each national market

Global Retailing: Global retailing is any retailing activity that crosses national borders

Retail stores can be divided into categories according to:

⁃ Amount of square feet of floor space
⁃ The live of service offered
⁃ Width and depth of product offerings and other criteria

Types of retail operations:

⁃ Department stores
⁃ Speciality stores
⁃ Supermarkets
⁃ Convenience store
⁃ Discount stores and warehouse clubs
⁃ Hypermarkets
⁃ Supercenters
⁃ Category killers
⁃ Outlet stores

Advertising agencies: organisations and brands

Understanding the term organisation os the key
Umbrella corporation companies have one or more core advertising agencies
Each organisation has units specialising in direct marketing, marketing services, public
relations or research

Advertising appeal
⁃ Selling proposition
⁃ Creative execution
⁃

Global Marketing Communications

Introduction:

 Marketing communications tell customers about the benefits and values that a company,
product or service offers.
 Different communication programs.
 Global challenge- effective communication across borders
 IMC- concept- unify marketing communication element like PR, SM, Advertising into brand
message that stand consistent across distinct media.
 Eg: Nike- integrated marketing model

Traditional Marketing Communication Elements:

 Advertisement
 Sales promotion
 Public relations
 Personal selling

Advertising:

Advertising may be defined as any sponsored, paid message that is communicated in a non-personal
way.

 Single country
 Regional
 Global

Global advertising may be defined as messages whose art, copy, headlines, photographs, taglines and
other elements have been developed expressly for their worldwide suitability.

Global company may use singe country advertising in addition to campaigns that are regional and
global in scope.
A Global Company-

 Ability to transform a domestic campaign into a worldwide one

 Or to create a new global campaign from the ground up,

Advantage:

 To build long-term product and brand identities.

 Offer significant savings by reducing cost associated with producing ads.
 Economies of scale in advertising as well as improved access to distribution channels.

Global Advertising Content: Standardization Vs Adaptation

 Primary Issue:
- Must the specific advertising message and media strategy be changed from region to
region or country to country?
- Think of cultural and legal issues.

 Four major difficulties:

1. The message may not get through the intended recipient- advertisers may have lack of
media knowledge.
2. The message may reach the Target audience but may not be understood or may be
even misunderstood.
3. The message may reach the Target audience and may be understood but still may not
compel the recipient to take action- lack of cultural knowledge about the target
audience.
4. The effective of the message can be impaired by the noise. Noise, in this case, is an
external influence, such as competitive advertising, other sales personnel.

Pattern Advertising:

 A middle ground between 100% standardisation and 100% adaptation.

  A basic pan- regional or global communication concept for which copy, artwork, or other
elements can be adapted as required for individual countries.
 For example, ads in European print campaign for Boeing shared basic design elements, but
the copy and the visual elements were localised on a country-by-country basis.
 Managers more sensitive to culture-importance to localised approaches and less sensitive to
culture adapt standardisation culture.
 Ex. Boeing Print Campaign

Advertising Agencies: Organizations and brands

 Understanding the term organization is the key

- Umbrella corporation/holding companies have one or more ‘core’ advertising agencies.
- Each organization has units specializing in direct marketing, marketing services, public
relations, or research.
 Individual agencies are considered brands
- Full service brands create advertising, and provide services such as market research,
media buying, and direct marketing.
- Advertising agencies spend time researching the best approaches and can create themed
campaigns that help enhance a campaign or product’s brand image.

Selecting an Advertising agency:

 Companies can create ads in-house, use an outside agency, or combine both strategies.
 Chanel, Benetton, H&M and Diesel rely on in-house marketing and advertising staffs for
creative work.
 Coco-cola has its own agency, Edge Creative, but also uses the services of outside agencies
such as Leo Burnett.
 In an effort to remain competitive, many small independent agencies in Europe, Asia and the
United States belong to Tranworld Advertising Agency Network (TAAN).
 When selecting an advertising agency it is important to consider the four areas listed:
- Company organization: Companies that are decentralised may want to leave the choice
to the local subsidiary
- National Responsiveness: Is the global agency familiar with local culture and buying
habits of a particular country?
- Area Coverage: Does the agency cover all relevant markets?
 - Buyer Perception: What kind of brand awareness does the company want to project?

Creating Global Advertising:

 Is the ad designed to inform, entertain, remind or persuade?

 Creative strategy: A statement or concept of what a particular message or campaign will
say.
 Big Idea: The big idea is the bridge between an advertising agency, temporal and worldly,
and an image, powerful and lasting.
 Eg, Absolute Vodka ( Launched 1500 different print ads )

Advertising Appeal:

 Rational Approach:
- Depend on logic and speak to the consumer’s intellect; based on the consumer’s need for
the information.
 Emotional Approach:
- Tugs at the heartstrings or uses as humour.

 Selling Preposition:
- The promise or claim that captures the reason for buying the product or the benefit that
ownership confers.
- Products will have different stages of PLC in different countries and also cultural,
economic, social differences exist- the most effective appeal or selling proposition for a
product may vary from market to market.
 Creative Execution:
- The way an appeal or proposition is presented.
- Types of execution chosen by ad agency: straight sell scientific evidence, demonstration,
comparison, slice of life, animation, fantasy, and dramatization.

Art Directors and Art Direction:

  Art Directors:
- Advertising professional who has the general responsibilities for the overall look of an ad.
- Will choose graphics, pictures, type styles and other visual elements that appear in an ad.

 Art Direction:
- The visional presentation of an advertisement.

Copy and Copywriters:

 Copy is written or spoken communication elements

 Copywriters are language specialist who develops headlines, subheads and body copy.
 As a general rule, copy should be relatively short and avoid slang or idioms.
 Languages vary in terms of the number of words required to convey a given message, thus the
increased use of pictures and illustrations.
 Some global ads feature visual appeals that convey a specific message with minimal use of
copy.
 Low literacy rates in many countries seriously compromise the use of print as a
communications device and require greater creativity in the use of audio-oriented media.

Advertising Copy Mistakes

Cultural Considerations

 Knowledge of cultural diversity, especially the symbolism associated

Global Media Decisions:

 The next issue facing advertisers is which medium or media to use when communicating with
target audiences.
 In some instances, the agency that creates the advertisement also makes recommendations
about media placement.
 The available alternatives can be broadly categorized as print media, electronic media.
 Globally, media decisions must take into consideration the country specific regulations.
 Prepare new copy for foreign markets in host country’s language.
 Translate the original copy into target language.
  Leave some or all copy elements in home country language.

Public Relations and Publicity:

 Fosters goodwill and understanding

 Generates favourable publicity
 Tools:
- News releases
- Media kits
- Press conferences
- Tours
- Articles in trade and professional journals
- TV and radio talk show appearances
- Special events

 Public Relations is the department or function responsible for evaluating public opinion
about, and attitudes towards to organization and its product and brands.
 CH- Global Marketing Communications Decisions 2: Sales promotion,
Personal Selling, Special Form of Marketing Communication

In addition to advertising, publicity and PR, the promotion mix includes Sponsorship.

 Sales promotion
 Direct marketing
 Personal selling
 Internet
 infomercials

SALES PROMOTION:

 sales promotion refers to any paid consumer or trade communication program of limited
duration that adds tangible value to a product or brand
- Price vs. Non-price promotions
- Consumer vs. Trade promotions
 Non-price promotions may take the form of free samples, premiums, “buy one get one free”
offers, sweepstakes and contests.
 Consumer sales promotions may be designed to make consumers aware of a new product, to
stimulate non users to sample an existing product, or to increase overall consumer demand.
 Trade sales promotions are designed to increase product available in distribution channels. At
many companies, expenditures for sales promotion activities have surpassed expenditure for
media advertising.

 Provide a tangible incentive to the buyer.

 Reduce the perceived risk with purchasing the product.
  Provide accountability for communications activity.
 Provide method of collecting additional data for database.

SALES PROMOTION: GLOBAL OR LOCAL

 In the countries with low income levels of economic development, low income limit the range
of promotional tools available. In such countries, free samples and demonstrations are more
likely to be used than coupons or on-pack premiums.
 Market maturity can also be different from country to country. Consumr sampling and
coupons are appropriate in growing markets, but mature markets might require trade
allowances or loyalty programmes.
 Local perceptions of a particular promotional tool or programme can vary. Japanese
consumers for example are reluctant to use coupons at the checkout desk.
 Local regulation may rule out use of particular promotion in certain countries.
 Trade structure in the retailing industry can affect the use of sales promotion. USA-
WALMART- Domination requires significant use of promotional tools, while For Japan,
promotional tools do not require.

SAMPLING:

- Provides consumer with opportunity to try product without any cost.

- May be distributed in stores, in the mail, through print media, at events or door-to-door.
 Marc Pritchard, vice president of P&G, noted recently, “the most fundamental thing that a
consumer wants to do is to try before they buy.
 Cost is one of the major disadvantages associated with sampling. Another problem is that it is
sometimes difficult for marketers to assess the contribution of sampling program makes to
return on investment.
 Today, many companies utilize event marketing and sponsorship to distribute samples at
concert.
 CHINA- consumers are more reluctant to buy full sized packages imported from other
countries.
COUPONING:

- Printed certificates entitle the bearer to a price reduction or some other special
consideration for purchasing a particular product.
 Coupons are a favourite promotion tool of consumer packaged goods companies like P&G
and Unilever. The goal is to reward loyal users and stimulate product trial by non users.
 In the European Union, couponing is widely used in the United Kingdom and Belgium.
Couponing is not as widely used in Asia where saving face is important. Although Asian
consumers have a reputation for thriftiness, some are reluctant to use coupons because doing
so might bring shame upon or their families.
 NCH Marketing Services, which tracks coupon trends, reports that about 300 billion coupons
are distributed in US each year; only about 1 percent are actually redeemed.
 Online coupon distribution is growing at a rapid rate.

SALES PROMOTION ISSUES & PROBLEMS:

 Fraud: Pepsi promotion with Apple. Consumers discovered that by titling the bottle one side
they could tell whether bottle was a winner.
 Regulations vary by country.
 Poor understanding of market.
 Cultural disposition to coupons and other sales promotion.