INTERNATIONAL

MARKETING

Global Pricing

Dr. Khanh Ngo

khanh.ngo@isb.edu.vn

www.isb.edu.vn
 What did you learn from previous session?

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Code:

11/20/2021 Dr. Khanh Ngo www.isb.edu.vn

 From Principle of Marketing

1. Pricing Strategies
a) Consumer Value-Based Pricing
b) Cost-Based Pricing
c) Competitor-Based Pricing

2. New-Product Pricing Strategies

a) Price skimming
b) Market Penetration Price

3. Product Mix Pricing Strategy

4. Price-Adjustment Strategies

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 Learning Objective

• Drivers of Foreign Market Pricing

• Managing Price Escalation
• Pricing in Inflationary Environments
• Global Pricing and Currency Fluctuations
• Transfer Pricing
• Global Pricing and Antidumping Regulation
• Price Coordination

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 Introduction

https://www.youtube.com/watch?v=XKfgdkcIUxw

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Introduction

https://www.youtube.com/watch?v=jiET7lhXvuo&t=76s

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 Introduction

• Global pricing is one of the most critical and complex issues in

international marketing.
• Price is the only marketing mix instrument that creates revenues. All
other elements entail costs.
• A company’s global pricing policy may make or break its overseas
expansion efforts.
• Multinationals also face the challenges of how to coordinate their
pricing across different countries.

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 Drivers of Foreign Market Pricing

• Main drivers affecting global

pricing:
• Company Goals
• Satisfactory ROI
• Market Share
• Specified Product Goal
• Company Costs
• Rigid Cost-Plus Pricing
• Flexible Cost-Plus Pricing
• Dynamic Incremental Pricing

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 Drivers of Foreign Market Pricing

• Customer Demand:
• Cheaper products with lower costs by
changing the product formula, packaging,
or size
• Charging prices in the same range as
Western prices to target upper-end
consumers
• A portfolio of products that cater to
different income level
• Sell older versions of the product at a
lower price in markets with low buying
power
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Exhibit 12-3: Price Promotions in Chinese
Cultures with End-8 Prices

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 Drivers of Foreign Market Pricing

• Competition
• Cross-Border Price Differentials depends on competitive situation
• Distribution Channels
• Variations in Trade Margins and Length of Channels
• Balance of power between manufacturers and their distributors
• Issues of Everyday Low Prices (EDLP): the manufacturer offers consistently lower prices to the
retailer
• Parallel Imports (Gray Market): from low-price countries to high-price ones
• Government Policies
• Direct impact: Sales tax rates (e.g., value-added taxes), tariffs, and price controls
• Indirect impact: government deficits, currency volatility, and inflation

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Exhibit 12-5: Retail Price Harley-Davidson
Ultra Electric Glide (In US$ Equivalent)

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 Question

How to manage price escalation?

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 Managing Price Escalation

• Options to lower the export price:

• Rearrange the distribution channel
• Eliminate costly features (or make
them optional)
• Downsize the product
• Assemble or manufacture the product
in foreign markets
• Adapt the product to escape tariffs or
tax levies

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 Pricing in Inflationary Environments

• Ways to safeguard against inflation:

• Modify components, ingredients, parts and/or packaging materials.
• Source materials from low-cost suppliers.
• Shorten credit terms.
• Include escalator clauses in long-term
contracts.
• Quote prices in a stable currency.
• Pursue rapid inventory turnovers.
• Draw lessons from other countries.

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 Pricing in Inflationary Environments

• Alternatives to price controls:

• Adapt the product line
• Shift target segments or markets.
• Launch new products or variants of
existing products.
• Negotiate with the government.
• Predict incidence of price controls.

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 Global Pricing and Currency Fluctuations

• Currency Gain/Loss
Pass Through
• 100% Pass-through
• Local-currency price
stability (LCPs)
• Currency Quotation

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Exhibit 12-6: Exporter Strategies Under Varying
Currency Conditions

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 Group Activity

Which pricing strategy will you use for your project?

How do you deal with: customer demand, competition,
distribution, price escalation, inflation, currency fluctuation?

11/20/2021 Dr. Khanh Ngo www.isb.edu.vn

 Question

What is pricing transfer?

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 Transfer Pricing

• Sales transactions between related entities of the same companies are called
transfer prices.
• Determinants of Transfer Prices:
• Market conditions in the foreign country
• Competition in the foreign country
• Reasonable profit for foreign affiliate
• U.S. federal income taxes
• Economic conditions in the foreign country
• Import restrictions
• Customs duties
• Price controls
• Taxation in the foreign country
• Exchange controls
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 Transfer Pricing

• Criteria for making transfer pricing decisions:

• Tax regimes
• Local market conditions
• Market imperfections
• Joint venture partner
• Morale of local country managers

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 Transfer Pricing

• Setting Transfer Prices:

• Market-based transfer
pricing:
• Arm’s length prices
• Nonmarket-based
pricing:
• Cost-based pricing
• Negotiated pricing

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 Transfer Pricing

• Government-imposed market constraints (e.g., import restrictions,

price controls, exchange controls) favor nonmarket-based transfer
pricing.
• Most firms use a mixture of market-based and non-market pricing
procedures.
• Minimizing the Risk of Transfer Pricing Tax Audits:
• Basic Arm’s Length Standard (BALS)

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 Global Pricing and Antidumping Regulation

• Dumping occurs when imports are sold at an “unfair” price.

• To minimize risk exposure to antidumping actions, exporters might
pursue any of the following marketing strategies:
• Trading up: Move away from low-value to high-value products via product
differentiation
• Service enhancement: adding support services to the core product
• Distribution and communication:
• Communication channels with local competitors
• Cooperative agreements with them (strategic alliance)
• reallocation of the firm’s marketing efforts from vulnerable products

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 Price Coordination

• The following considerations will be necessary when developing a

global pricing strategy:
• Nature of customers
• Amount of product differentiation
• Nature of channels
• Nature of competition
• Market integration
• Internal organization
• Government regulation

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 Price Coordination

• Global-Pricing Contracts –GPCs

• Purchasers often demand GPCs from their suppliers.
• GPCs can also benefit suppliers.
• A GPC can offer the opening toward nurturing a lasting customer relationship.
• Small suppliers can use GPCs as a differentiation tool to get access to new
accounts.

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 Price Coordination

• Aligning Pan-Regional Prices

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Exhibit 12-9: Pan-European Price Coordination

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 Price Coordination

• Implementing Price Coordination: Global marketers can choose from

four alternatives to promote price coordination within their
organizations:
• Economic measures: Corporate headquarters are able to influence pricing
decisions at the local level via transfer price
• Centralization: pricing decisions are made at corporate or regional
headquarters level
• Formalization: headquarters spells out a set of pricing rules that the country
managers should comply with
• Informal coordination: discussion groups, “best-practice” gatherings
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 Group Activity

How to you deal with: pricing transfer, price coordination?

11/20/2021 Dr. Khanh Ngo www.isb.edu.vn