Global Perspective The Price War Setting the right price for a product or service can be the key to success or failure An offerings price must reflect the quality and value the consumer perceives in the product As the globalization of world markets continues, competition intensifies among multinational and home-based companies The marketing managers responsibility is to set and control the actual price of goods in different markets in which different sets of variables are to be found

Pricing Policy Parallel Imports Occurs whenever price differences are greater than the cost of transportation between two markets Major problem for pharmaceutical companies Exclusive distribution Parallel imports develop when importers buy products from distributors in one country and sell them in another to distributors who are not part of the manufacturers regular distribution system.

How Gray-Market Goods End up in U.S. Stores Insert Exhibit 18.1

Approaches to International Pricing Skimming versus Penetration Pricing Skimming – a company uses when the objective is to reach a segment of the market that is relatively price insensitive and thus willing to pay a premium price for the value received. Penetration pricing policy – used to stimulate market and sales growth by deliberately offering products at low prices.

Price Escalation Costs of exporting -Price escalation Taxes, tariffs, and administrative costs -Tariff – fee charged when goods are brought into a country from another country -Administrative costs include export and import licenses, other documents, and the physical arrangements for getting the product from port of entry to the buyers location

Price Escalation (continued) Inflation -In countries with rapid inflation or exchange variation, the selling price must be related to the cost of goods sold and the cost of replacing the items Deflation -In a deflationary market, it is essential for a company to keep prices low and raise brand value to win the trust of consumers Exchange rate fluctuations -No one is quite sure of the future value of currency -Transactions are increasingly being written in terms of the vendor companys national currency

Price Escalation (continued) Varying currency values -Changing values of a countrys currency relative to other currencies -Cost-plus pricing Middleman and transportation costs -Channel diversity -Underdeveloped marketing and distribution channel infrastructures

Sample Causes and Effects of Price Escalation Insert Exhibit 18.3

Approaches to Lessening Price Escalation Lowering cost of goods Lowering tariffs Lowering distribution costs Using foreign trade zones to lessen price escalation Dumping

Countertrade as a Pricing Tool Why purchasers impose countertrade: -To preserve hard currency -To improve balance of trade -To gain access to new markets -To upgrade manufacturing capabilities -To maintain prices of export goods -To force reinvestment of proceeds from weapons deals

Countertrade as a Pricing Tool (continued) Types of countertrade -Barter -Compensation deals -Counterpurchase or offset trade -Product buyback agreement

Transfer Pricing Strategy Benefits: -Lowering duty costs -Reducing income taxes in high-tax countries -Facilitating dividend repatriation when dividend repatriation is curtailed by government policy Arrangements for pricing goods for intracompany transfer: -Sales at the local manufacturing cost plus a standard markup -Sales at the cost of the most efficient producer in the company plus a standard markup -Sales at negotiated prices -Arms-length sales using the same prices as quoted to independent customers

Administered Pricing Cartels -Exists when various companies producing similar products or services work together to control markets for the types of goods and services they produce -Example: OPEC Government-influenced pricing -Establish margins -Set prices and floors or ceilings -Restrict price changes -Compete in the market -Grant subsidies -Act as a purchasing monopoly or selling monopoly