Chapter 14 Pricing Strategies and Tactics

Price Dynamics Pricing is the only revenue generating element of the marketing mix. Pricing is a means of attracting and communicating an offer to a potential buyer. Pricing is a competitive tool. Pricing can be used to position the product or service in the marketplace.

Different Pricing Strategy Skimming Is to achieve the highest possible contribution in a short initial time period, then gradually lowering the price as the market. Market Pricing Following competitive pricing in the target market; adjusting production and marketing mix to competitive conditions. Penetration Pricing Offering low pricing to generate volume sales which hopefully will compensate for low margins.

Market Skimming Charging a premium price May occur at the introduction stage of product life cycle Meet the demand of innovators and early adopters who are willing to pay higher. Used consistently in consumer electronic industry

Penetration Pricing Charging a low price in order to penetrate market quickly Appropriate to saturate market prior to imitation by competitors Packaged food product makers, with products that do not merit patents, may use this strategy. 1979 Sony Walkman

ASSESSMENT OF PRICING ENVIRONMENTS INTERNAL Marketing Mix Product (e.g., old/new; standardized/differentiated Distribution system (e.g., length) Promotion needs (e.g., sales efforts) Company characteristics Extent of internationalization Countries exported to Management attitudes Importance of exports Overall price position of firm EXTERNAL Market-related factors Nature of demand/target audience characteristics Government regulations (e.g., duties) Exchange rate stability Industry-related factors Competition intensity Nature of competition Pricing Policy Selection Pricing Strategy Determination Setting of Specific Price

The Setting of Export Prices Pricing Policies Factors profit maximization market share survival return on investment competitive policies copy competitive pricing follow competitive pricing price to discourage competitive entry Customer Purchase Factors ability to pay price-quality relationship reaction to marketing mix market support

Export Pricing Strategy Cost-oriented pricing Standard worldwide price- regardless of buyer’s location in the market(s) Market-differentiated pricing based on the dynamics of the marketplace changes in competition, exchange rates, or other environmental changes etc.

Export-Related Costs Export-related costs Cost of modifying a product for a foreign market Operational costs of exporting Cost incurred in entering the foreign market Price escalation for exports results from Clear-cut and hidden costs

Methods for combating price escalation Reorganize the channel of distribution Product adaptation Change tariff or tax classifications Overseas assembly or production

Negotiating Terms of Payment Considerations The amount of payment and the need for protection. Terms offered by competitors. Practices in the industry. Capacity for financing international transactions. Relative strength of the parties involved.

Terms of Payment Cash in Advance Letter of Credit Drafts Not widely used except for first time transactions Letter of Credit Promise to pay Irrevocable, confirmed, non-revolving Drafts Similar to personal check Must obtain shipping documents prior to delivery Documentary collection Bank acts as collection agent Draft may be sold at discounted rate for immediate cash

Managing Foreign Exchange Risk Forward rate exchange market “the exchange of currencies on a future date at an agreed upon exchange rate” Spot rate transaction “the exchange of currencies for immediate delivery”

Dumping Ranges of dumping Remedies for dumping Predatory dumping is intentional selling at a loss to increase market share Unintentional dumping occurs when market factors cause the import’s selling price to fall below prices in the exporter’s home market Remedies for dumping Antidumping duty are levied on imported goods sold at less than fair market value Countervailing duties are imposed on imports which are subsidized in the exporter’s home country