International Pricing and distribution

Overview
Background:
Price Knowledge/Reference Price/Price-Quality Perception/Price Elasticity/Sales Promotion
Key element of the marketing mix
Only element of the mix to earn revenue
Others create costs
Pricing signals value
Many prospects are price limited
Export Pricing
Pricing Strategy
Price Harmonisation
Transfer Price
Dumping/Parallel Imports
Incoterms

Pricing Discretion
Price can be set anywhere in this range

Reference Price
Reference price – what shoppers expect to pay – seems to be based on what they have paid
Briesch et al. (1997) showed that a weighted average of past purchase prices predicts the reference price (JCR, 24, 202-214)
Reference price may be fair price, expected price now or expected future price (Jacobson and Obermiller 1990 JCR, March, 16, 420)
Kalyanaram and Little (1994) found a ‘region of price insensitivity’ but some products seem to be outside the range, e.g. Dualit.

Quality Perception
Perceived
price
Inferred
quality
Reference
price
Acceptability
Purchase or not
Past prices, advice, knowledge
Brand, store, appearance
+

Price Promotions
Special case: Price cut then back to normal
Usually with signalling
Produce Up-and-Down Sales blips
At great cost?
Does it gain new consumers?
Or Erode Brand Equity

Discounts May Also Hurt the Brand Equity
Guadagni and Little (1983), Lattin and Bucklin (1989) investigated the effect of frequent promotions over a period of months.
some erosion of reference price
Mela et al. (1998) IJRM, 15, 2, 89-107 looked at promotions over 8 years for a range of products.
The shift from ads to promotions were associated with reduced differentiation between brands

Should factory price for export be the same as for domestic business?
Export Pricing - Price Escalation

Environmental Influences on Pricing Decisions
Currency Fluctuations
Inflationary Environment
Government Controls, Subsidies, and Regulations
Competition
Using Sourcing as a Strategic Pricing Tool

Influences on Prices Standardisation vs. Differentiation
Customer
Preferences
Competitive
Situation
Cost
Situation
Inflation/Exchange Rates
Regulations
/
Tariffs
and
Duties
Reduction
of
Trade
Barriers
Decreasing
Transportation
Costs
Active
Retailers
/
Grey
Markets
/Global
Sourcing
Improved
Communication
and
Information
Flow
Increasing
Brand
Globalisation
/
Standardisation
Optimal
Prices
!
Future
Developments
External
Drivers
Market
-
Related Drivers
External
Drivers
Company
-
Related
Drivers
Factors Driving
Price Differentiation
Factors Driving
Price Standardisation

Parallel Importing (Gray Market)
What factors give rise to parallel importing?
Examples of gray market activities?
Is parallel importing a good thing or a bad thing? What are the positives and negatives?
How can firms deal with this issue?

Avoiding parallel imports: combating gray markets
Problem in neighbouring markets (Europe, Asia)
Competition authorities favour cross-border price competition which legitimizes parallel imports
Possible solutions to counter parallel imports:
Reduce price differentials
Change the product to favourably differentiate it
Educate weaker dealers who are prime targets for grey sellers
Terminate the dealer agreement (or threaten to do so)
Buy back the grey market goods
Sell products under a different name
Set policies to allow the authorized dealers and parallel importers to live in relative peace
They may target different consumer segments based on risk aversion
The unauthorized dealer may scale down its product, warranty and service offering

Dumping
Imports sold at “unfair” price
Below home-country price (price discrimination)
Below “constructed value” (average cost of production)
Which cost?
Why dump?
Predatory dumping
To drive competitor from the market
Cyclical dumping
deal with excess capacity e.g. Korean memory chips, EU butter mountain
Opportunism – short-term advantage
Inadvertent due to currency fluctuations

Transfer Pricing
When a firm exports to its own subsidiary it has great freedom to set its transfer price
Firms can use transfer prices & interest payments to direct funds
To country with lowest tax rate
To countries that have fewer exchange controls
High transfer price
Keeps profit in home country where it is instantly available
But increases import duty
Lower transfer price
Transfers value to the foreign subsidiary

International Marketing
International Distribution

Overview
Adding value through distribution and logistics
Channel design and management
Key trends in retailing

Marketing Channel Alternatives: Consumer Products

Channel Management
Optimisation of the four flows through the several channels between a firm and its various customer segments
From firm
Promotional messages
Product
From channel
Payment
Market information

Designing Distribution Channels
Product
Perishable, bulky, technical, range of products
Consumer
Required service level, price sensitivity, distribution
Infrastructure
Margins, regulations, logistics
Company Objectives
Positioning, market share, profit
Company Culture
Control, flexibility, risk
Competition

Designing Distribution Channels
Distribution density
Exclusive - Selective – Intensive
Channel length
How many intermediaries?
Keiretsu in Japan
Channel alignment
Who is channel captain?
UK - major retailers; USA - wholesalers; Emerging markets, importers
Distribution logistics
Cost versus customer needs

Distribution Costs
Total Distribution Cost (TDC) =
Total transport cost + Warehouse cost + Inventory cost + Order processing + Packaging cost + Opportunity cost of lost sales
It may not be cheaper by sea!
Make the trade-off using TDC approach.
Freight cost will be higher by air, but..
warehousing & inventory costs lower,
order processing, insurance & admin costs less,
less costly packaging and fewer lost sales.