L4 International marketing strategy:pricing

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L4 International marketing strategypricing
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Overview

• 1 Introduction / pricing objectives
• 2 Cavusgils model
• 3Global pricing
• 4 Price escalation
• 5 Impacts that might lead to price escalation
• 6 Calculation/ example of price escalation
• 7 Roberts model of price determination
• 8 Target costing
• 9 Experience curves
• 10 Countertrade
• 11 Types of countertrade
• 12 Transfer pricing
• 13 International price comparison
• 14 Matrix pricing

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1Pricing objectives
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(No Transcript)
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Cavusgils model

• Company factors- target export markets -
  S.T.Ps.in those markets- . functional
  mix strategies in those markets
• 
  ----------------------------------
• _ economics of
  RD,technology -N.P.D- factor inputs
  
  ( material labour costs )
• productivity ,
  scale and experience effects( see later)
• 
  -----------------------------------
• _distribution
  /marketing costs -which channels logistics
• to use abroad
  ?
• Product factors new or current product?
  Degree of differentiation ?
• Stage in P.L.C.?
• consumer or
  industrial product ?
• commodity
  ,manufactured or service good ?
• _

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Cavusgils model continued

• Market factors_ consumer income, needs , tastes
  behaviour( see portfolio)
• _ regulatory frame work-
  controls on import / export
• _ dumping , taxes , price
  controls
• _ competition
  strengths ,substitutes
• _ exchange rate plus
  forecasts
• _ market structure and
  market prices
• _ environment and
  pricing structure in other markets
• Nb All parts of Cavusgils model impact upon the
  pricing policy for a given country / mkt and
  also the terms within a given export contract for
  that market.

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3The global price- setting decision process
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4Factors influencing price escalation
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4Impacts that may lead to price escalation
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6 Example of price escalation
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7 Roberts model of export price determination
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Ways to reduce costs in the factory

• Substitute alternative materials
• Use standard parts or materials
• Relax manufacturing tolerances
• Utilise standard manufacturing methods
• Eliminate unnecessary design features
• Design the product and its manufacturing process
• Buy- in rather than make
• Use pre- finished materials
• Use pre- fabricated parts
• Eliminate parts or operations
• Rationalise product ranges / range of parts
• Substitute low- cost manufacturing processes
• Elininate waste ( japanese mudas )

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Reducing cost in the distribution channel

• Move to a low- cost production location e.g
  Kaliningrad for B.M.W.cars
• Reduce the number of intermediaries in the
  channel
• Negotiate lower margins with distributors in
  exchange for more business/ bigger volumes to
  handle
• Modularise product source expensive items abroad
  e.g. Toyota piston assemblies for engines
• Ship in K.D. form and assemble abroad
• Integrate forward with distribution companies

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8The target costing process
Czinkota et al 2011 chp 11 p 369
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Traditional (western approaches) v Japanese
approaches to setting price
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9 Experience curves
Y1
Y2
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Experience curves and value chain activities
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10 Countertrade

• Defn countertrade is an umbrella term for a
  whole range of commercial mechanisms for
  reciprocal trade.These include counterpurchase ,
  barter, buyback, offset, switch trading and
  evidence accounts.
• A characteristic of countertrade is that export
  sales to a given market are made conditional
  upon undertakings to accept imports from that
  market
• e.g. A British exporter sells to country
  X on condition that he accepts agricultural
  products from country X in payment

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Example of countertrade with an international
chemical company
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Classification of forms of countertrade
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Why has countertrade grown?

• 1 Countries and / or large corporations or
  individuals have products that they wish to get
  rid of.
• 2 Over- printing of the U.S. Dollar domestically
  means that countries holding large amounts of
  dollar reserves feel that those reserves are
  under threat/ loosing value
• e.g. China ,India, Russia
• This may lead to the need for a replacement
  currency for financing international
  trade. Problem is that there isnt one or not
  enough of one .Hence countries prefer to trade in
  e.g. raw materials via countertrade.
• 3 Instability in the Euro has a similar
  scenario. Export strength of Germany without
  accompanying imports e.g. from other E.C. Members
  like Greece creates huge debts/ borrowing in
  Greece

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11Types of countertrade

• 1 Counterpurchase
• Here 2 parallel contracts are issued .One for
  the main order and paid for in cash/ credit the
  other for the counter purchase paid for in goods
  /services .The latter is usually a fraction or
  of the main order price
• e.g Indonesia wishes to buy oil from Iran. A
  deal is negotiated whereby Iran agrees to buy
  indonesian tea ,plywood and rubber in return for
  oil.

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Continued

• 2 Barter .
  
  This is the direct exchange of goods for
  goods.A single contract covers both flows of
  goods with no cash being involved.
• Problem the supply of the main export good
  is often delayed until sufficient money has been
  earned from the sales of the bartered good
• e.g. 200,000 tonnes of Greek wheat for
  600,000 tonnes of Algerian crude oil

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Continued

• Buyback deals
• A buyback deal is where suppliers of e.g
  capital plant agree to its repayment using the
  future output of that plant
• e.g.Italian producers of acrylic fibre
  plant sold this to Russia in return for
  deliveries of acrylic fibre to pay for the
  plant.
• e.g. Reed international provided a pulp
  plant to Sweden .It was paid for with the output
  of the plant ( paper)
• Offset trade
• These forms of trade are frequently used
  for technology contracts.The exporter agrees to
  incorporate into his / her final product the
  components or sub-assemblies of the importer
• e.g. The French E.D.F company will build
  nuclear power stations for Britain but will
  incorporate components / pumps from Rolls Royce (
  announced 16th Feb2012)

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Continued

• 5 Switch trading( Swap deals )
• Overtime there may be imbalances in long term
  bilateral trade .This may lead to the
  accumulation of uncleared credit surpluses
• e.g. Brazil used to have large credit
  surpluses with Poland
• In the above situation a third country e.g.
  U.K. may export to Brazil and the finance for
  this will come from the sale of Polish exports
  to U.K. ( or elsewhere)

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12Transfer pricing
Common ownership
U.S.A.plant
U.K shop
Manufacturing company
Marketing company
Int. Border
Goods
Doole Lowe(2008) chp 11 ,p 401
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Effects of transfer pricing
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International price comparison/ use of matrix
pricing
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14Matrix pricing use when there is a large
product range/many price changes
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References

• Czinkota et al( 2011) chp 11,
• Kotabe Helson(2011) chp 12,
• Cateora et al (2009) chp 18 p,
• Mulbacher et al ( 2006) chp16,
• Doole Lowe (2008 ) chp 11,
• Lee Carter ( 2009 ) chp 14 ,
• Ghauri Cateora(2010) chp 18 ,
• Johannsen ( 2006 ) chp 14 ,