Reflection and Application Report (chapter 12)
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Ch12InternationalPricing.pptCHAPTER 12
International Pricing
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EX: Global Pricing of iPad Air
Why uniform standard pricing is difficult in global markets?
What are the patterns of global pricing across national markets / or regions?
Reasons / factors contribute to the price discrepancy in global markets
How prices are set?
PF = Price (sales) - cost
Price Escalation in Global Markets
Causes
The effect
Gray market – take advantage of price differentials in global markets (EX)
Extra Credit Homework:
Issues of “Gray” Marketing Channels in International Market
- What is “gray” marketing? What cause gray marketing? Problems and challenges related to gray marketing…
- Provide an example
(Please attached the article, or a photo of the product that you discuss in the paper.)
- Your suggestions (solutions/strategies) for managing the gray marketing.
- Format: One page write up, double space.
- Submit to iLearn.
- File name format: Gray Market EX - your name.doc
Factors in International Pricing
Firm level factors
- strategic objectives & competitive pressure
- cost structure
Market-specific factors
- consumer’s ability to buy
- government intervention
- distribution channel
- local competition & price cutting pressure
- effects of exchange rate
Product-specific factors
- demand
- product life cycle stage
- product line
Strategic Objective and Pricing
Proctor & Gamble
Giant US manufacturer of soap, detergent, shampoo, and food
Has a minor presence in India
Objective: To develop a stronger presence and market share
Strategy: lower prices sharply (cutting detergent price in half)
Responses from its top competitor - Uniliver
Strategic Objective and Pricing
Uniliver’s response
Matched P & G’s price cut in detergents
Lowered its shampoo prices as well
Launched new products that suited to Indian consumers’ needs
- cleaning powder works well /w only 2 buckets of water (/4)
- running water is scare in large cities
Pioneered the small affordable sachets of detergent, shampoo, and toothpaste (price as little as penny apiece)
Penetrated the low-income consumers across India
- 300 million in 2015
- $20 billion market for soap, detergent, and snack food
Strategic Objective and Pricing
Uniliver’s response
Scale economy advantage – low manufacturing cost
- 10 times larger than P & G in India
- $2.2b sales
Employs 20,000 wholesalers and distributors
- may, at times, make deliveries by bicycle
- reaches 2.5 million retail outlets
- employs women (over 6,000) to sell door-to-door
Localized advertising
- use Indian “Bollywood” starts
Demand and Price Elasticity
Demand of a product
Affected by:
- ability to buy
- preference, taste, attitude
- supply and competition
Demand elasticity
Skimming vs. Penetration Pricing
Skimming Pricing
High level price, low sales volumes with higher profit margins
Penetration Pricing
Low price to attract larger number of consumers
Higher unit volumes result in larger total profit (even though margin per unit is low)
Pros and cons?
Pricing Too Low: Dumping
Dumping
A firm is judged to be pricing below costs
Under US international trade law, firms can petition the US Intl. Trade Commission
Can impose antidumping/ countervailing duties
Examples:
- lumber from Canada
- orange juice from Brazil
- wooden bedroom furniture from China
- minivans from Japan
Target Pricing
Tata Nano – the world’s cheapest car
India auto market:
- high level of unmet demand of consumers
- couldn’t afford the higher-priced models available in India
Worked backward from the target price of 110,000 rupees ($2,500) to determine product features
Priority features
- safe to drive in bad weather
Nice to have features
- air-conditioning
- power windows
To build scale economies, offers in only three colors (red, yellow, silver)
EX: Your Pricing Strategy
What’s your pricing strategy?
Price for your product/service $______?
Factors contribute to this decision
Strategic reasons?
