International Marketing - Pricing Decisions PDF

International Marketing @University of Tübingen Marketing decisions: Pricing Prof. Dr. Kristina Klein Agenda Introduction to international 1 marketing 2 Market selection and market entry 3 The role of culture Marketing decisions: The product 4 and the brand...

International Marketing @University of Tübingen Marketing decisions: Pricing Prof. Dr. Kristina Klein Agenda Introduction to international 1 marketing 2 Market selection and market entry 3 The role of culture Marketing decisions: The product 4 and the brand Marketing decisions: 5 International pricing Marketing decisions: International 6 distribution Marketing decisions: International 7 communication and advertising Entering new markets – different pricing approaches Penetration Skimming Charging a low price in order to Charging a premium price penetrate market quickly May occur at the introduction Appropriate to saturate market stage of product life cycle prior to imitation by competitors because in the long term prices decrease 3 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Agenda 5.1 Price-Value Positions 5.2 Price Determination 5.3 International Price Discrimination 5.4 Price Monitoring The international price management process 1 2 3 4 Strategy Analysis Price Decision Implementation Development What do we want? How do we do it today? What is the optimal price/price structure? How can prices be imposed to the market? What are we heading for? A system of rules The price management process contains: information, models, rules, competences, To determine prices and responsibilities, incentives, training To implement prices Simon, H./Fassnacht, M. (2009), Preismanagement, p. 17 5 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Four price positioning strategies (price-value) exist Depending on the relative price-value relationship, one can distinguish four price positioning strategies: consumer perspective, not from your perspective e.g. luxury products, high technology High Premium Price products (laptops, etc.) Relative value/ Middle Middle Price quality Low Price Low Discounting Low Middle High Relative price Simon, H./Fassnacht, M. (2009), Preismanagement, p. 34 6 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Change of price-value positions – example Honda Example Honda in Vietnam: In 1990s, Honda dominated motorbike market in Vietnam (market share 90%) “Honda Dream“ was originally sold for USD 2,100 Chinese competitors entered market, sold motor bikes for ultra-low prices between USD 550-700 Honda’s sales decreased dramatically Honda launched „Wave α“ (acceptable quality + low prices) in 2001 for USD 732  Honda was successful with change of price-value position  drove Chinese competitors away from Vietnam 7 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Agenda 5.1 Price-Value Positions 5.2 Price Determination 5.3 International Price Discrimination 5.4 Price Monitoring The international price management process 1 2 3 4 Strategy Analysis Price Decision Implementation Development What do we want? How do we do it today? What is the optimal price/price structure? How can prices be imposed to the market? What are we heading for? A system of rules The price management process contains: information, models, rules, To determine prices and competences, responsibilities, incentives, training To implement prices Simon, H./Fassnacht, M. (2009), Preismanagement, p. 17 9 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Standardization or differentiation of international pricing Price differentiation Orientation on individuality of country markets Country-specific adaptation of prices by exploitation of different willingness-to-pay Considering purchasing power differences, this pricing approach can lead to large price differences between country markets Only applicable if few interdependencies between the country markets exist if interdependencies between the country markets exist, there is the arbitrage case Price standardization Extreme case: Complete harmonization of prices Abdication of exploitation of different willingness-to-pay tendencies Preferable if high integration of country markets and if arbitrage activities are already high with small price differences Backhaus, K./Büschken, J./Voeth, M. (2003), Internationales Marketing, p. 229 10 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Factors influencing standardization or differentiation of pricing decisions Influencing factors Consumer- Supplier- Competitor- driven driven Environmental driven factors factors factors factors Affinity of arbitrage Cost situation Competitive situation in Inflation- and exchange general --> adaptation rate risk Purchasing power level Re-Imports Tax differences Buyer preferences buying cheap products and reselling them more expensive Distribution channel Image differences the higher the affinity of arbitrage, the more standardized purchasing power level --> differentiated prices buyer preferences --> standardized prices Backhaus, K./Büschken, J./Voeth, M. (2003), Internationales Marketing, pp. 231 ff. 11 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de  Cost-based factors for prices Prices charged in an international context can depend (apart from different customers and competitors) on several cost-based factors:  Varying taxation in different countries leads to different gross prices in countries with Taxation Transportation costs exceptional high taxes differences for the product  Manufacturers have to lower net prices PRICE Currency Trade barriers Exchange rates 00 Trade barriers 12 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Cost-based factors for prices Prices charged in an international context can depend (apart from different customers and competitors) on several cost-based factors: Taxation Transportation costs differences for the product PRICE Currency Trade barriers Exchange rates 00 Trade barriers 13 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de International transportation costs and Incoterms The International Commercial Terms (Incoterms) provide a standardized framework for transportation cost and risk issues which holds a variety of standardized agreements between companies and customers. Transfer of risk from Transfer of cost from Incoterm Description company to consumer company to customer EXW Ex works Factory Factory FCA Free carrier Place of delivery Place of delivery FOB Free on board Ship‘s rails Ship‘s rails CFR Cost and freight Ship‘s rails Port of destination CIF Cost, insurance, freight Ship‘s rails Port of destination Homburg, C./Kuester, S./Krohmer, H. (2009), Marketing Management, p. 441; Keegan, W./Green, M. (2011), pp. 372-373; http://www.iccwbo.org/products-and-services/trade-facilitation/incoterms-2010/the-incoterms-rules/ 14 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Incoterms - example Example: An American-built Jeep Grand Cherokee goes to Japan (estimates). Amount of Price Item Total Escalation Ex-works price 0 $30,000 Exchange rate adjustment $2,100 $32,100 Shipping $300 $32,400 Customs fees $1,000 $33,400 Distributor fees $3,700 $37,100 Inspection, accessories $1,700 $38,800 Added options, prep $3,000 $41,800 Final sticker price $8,200 $50,000 Keegan, W./Green, M. (2011), pp. 373-374 15 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Cost-based factors for prices Prices charged in an international context can depend (apart from different customers and competitors) on several cost-based factors: Taxation Transportation costs differences for the product PRICE Currency Trade barriers Exchange rates Trade barriers 16 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Price determination may follow different approaches Traditional approaches for price determination Cost based Consumer based Competition based Prices are determined only by costs Prices are based on consumers’ Prices are based on price related behavior of willingness to pay competition Cost plus pricing Willingness to pay varies between Most frequent prototype is price leader Maximizing margins cultures Price leader influences price setting Pricing with scarce resources Different cultures and price policy on a market Minimum price level Benefit from products differently Competitors follow price leader with Short-term: Variable costs their price policy Perceive prices differently Long-term: Full costs Reasons for price leadership: low prices, market power, chronological + simple process - ignore certain willingness of customers to pay, forgo revenue proceeding Simon, H./Fassnacht, M. (2009), Preismanagement, pp. 538-40; Keegan, W./Schlegelmilch, B. (2001), Global Marketing Management, pp. 408-409 17 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Agenda 5.1 Price-Value Positions 5.2 Price Determination International Price 5.3 Discrimination 5.4 Price Monitoring The international price management process 1 2 3 4 Strategy Analysis Price Decision Implementation Development What do we want? What is the optimal price/price How do we do it today? How can prices be imposed to the market? What are we heading for? structure? A system of rules The price management process contains: information, models, rules, To determine prices and competences, responsibilities, incentives, training To implement prices Simon, H./Fassnacht, M. (2009), Preismanagement, p. 17 19 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Price discrimination - idea sales sales Uniform price Price differentiation P3 additional profit P1 P2 profit* P1 profit* * Assumption: variable costs = 0 price price Simon, H./Fassnacht, M. (2009), Preismanagement, p. 257 f. 20 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Example for price differentiation Market with 2 consumers and variable costs of 0 € Consumer willingness to pay A 8€ B 5€ Optimal uniform price: 5 €  profit: 10 € optimal price differentiation: 8 € for A and 5 € for B  profit: 13 € Consumer surplus: willingness to pay – price A has positive consumer surplus B is indifferent between purchase and no purchase Profit increase through skimming of consumer surplus (resp. willingness to pay) Requirement: knowledge of individual willingness to pay 21 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Negative impacts of price discrimination - example Adidas is sponsor of rugby national team “All Blacks“ in New Zealand Adidas charged NZD 220 (128 EUR) for the “All Blacks“ fan jerseys Same jersey was available online for NZD 98 in USA and UK (55% less) Nike is sponsor of the British team and charged NZD 111 for the fan jerseys Puma is sponsor of the Irish team and charged NZD 123 for the fan jerseys Adidas closed internet shop for selling jerseys from USA and UK to New Zealand New Zealanders were outraged and protested Boycott on Facebook and of adidas products Adidas apologized, promised to open all web shops, but didn‘t change the price  Price discrimination is a sensitive topic  Too high and obvious price discriminations  Can lead to negative customer reactions and  Can harm the brand image Frankfurter Allgemeine Zeitung, 15.08.2011, p. 14 22 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Different price tags (multi currency) Retailers frequently use price labels that contain a product’s price in different currencies → retailers can standardize their price labels across countries. e.g. H&M; Zara, etc. having labels with prices in many currencies In the Eurozone, multi-currency price labels contain the price in euro that must be paid in the case of purchase. Moreover, these labels contain irrelevant information for a customer in the Eurozone: the prices that have to be paid in other countries that do not use the euro (e. g., the price in Swiss franc that has to be paid in Switzerland and the price in Czech koruna that has to be paid in the Czech Republic). Thomas,S.; Gierl, H. (2016): Do Multi-Currency Price Tags Bias Price Perceptions? Marketing ZFP, 38(4), 199-214 23 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Different price tags (multi currency) Thomas,S.; Gierl, H. (2016): Do Multi-Currency Price Tags Bias Price Perceptions? Marketing ZFP, 38(4), 199-214 24 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de International price discrimination process: 1. stage 1. 4. 2. 3. 5. Are there price Determination of Can the price Estimation of price Determination of differences optimal inter- differences be elasticity in the price corridor between country price held up? different countries countries? YES Problem: Grey markets! www.spiegel.de; Fassnacht (2012) 25 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de 1. Stage – grey markets Grey Markets  = re-imports or parallel imports  Appear when retailers or consumers exploit price differences between different countries  Often, grey products are  High-price luxury products (e.g. cars, jewelry)  Products with lower per-unit costs (e.g. pharmaceutical articles, batteries) Four strategies against grey markets 1. Legal measures 2. Aggressive reactions when a grey market exists  Repurchase grey products  International standard prices  Limitations of offered products 3. Utilization of the grey market  Using grey markets as price discrimination instrument  Acquisition of grey retailer 4. Proactive defense  Country-specific product discrimination  Retailer relationship management  Price corridor management Adapted from Simon, H./Wiese, C. (1994), Internationales Preismanagement, p.24; Simon, H./Fassnacht, M. (2009), Preismanagement, p. 560 26 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de International price discrimination process: 2. stage 1. 4. 2. 3. 5. Are there price Determination of Can the price Estimation of price Determination of differences optimal inter- differences be elasticity in the price corridor between country price held up? different countries countries? 1. Concept of international price corridor Defining a price corridor in order to keep price differences to a certain level that does not allow grey markets to emerge 2. Strategies how price differences can be held up Product management Communication management Sales management Legal issues Fassnacht (2012) 27 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de 2. stage – International price corridor (1/2) in case arbitrage isn't planned effectively A worst case scenario Source: Simon, Kucher & Partner A price adjustment of the high-price countries to the low-price countries must be avoided Simon, H./Fassnacht, M. (2009), Preismanagement, p. 551-2 28 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de 2. stage – International price corridor (2/2) A better solution Endangerment by grey markets is lowered The worst case scenario has to be avoided by actively managing the international price corridor The international price corridor has to be kept in mind when decisions are made in European price management Simon, H./Fassnacht, M. (2009), Preismanagement, p. 551-2 29 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de International price discrimination process: 2. stage 1. 4. 2. 3. 5. Are there price Determination of Can the price Estimation of price Determination of differences optimal inter- differences be elasticity in the price corridor between country price held up? different countries countries? 1. Concept of international price corridor Defining a price corridor in order to keep price differences to a certain level that does not allow grey markets to emerge 2. Strategies how price differences can be held up Product management Communication management Sales management Legal issues Fassnacht (2012) 30 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de 2. stage – International product differentiation (1/2) Branding Additional services Quality/ Performance level Brands = signal of quality (reduces risk and Additional services can lead to successful Cars do not have the same increases orientation) price discrimination equipment in countries with a Impact on price discrimination: lower price level for cars Strengthening a brand in one country has influence on consumers’ Examples: Example: Special Edition for cars, perception of a product/service Different periods of guarantee e.g., Ford Fiesta Different brands in different countries After sales services for complex products Country-of-origin effect Bagging-service in supermarkets, e.g. Carrefour in China Example: Ariel vs. Tide Extensive advisory services Home-delivery service adapted from Keegan, W.J./Schlegelmilch, B. (2001), pp. 378 ff. 31 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de 2. stage – International product differentiation (2/2) Package Size Other Example:  Flavors/tastes – adapting to local food preferences Schauma Shampoo is smaller and  Ingredients - changing quality of ingredients therefore cheaper in Tunisia than in Europe  Language barriers  System products - technical barriers Example: Encoding of DVDs and different video formats adapted from Keegan, W.J./Schlegelmilch, B. (2001), pp. 378 ff. 32 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Product differentiation - examples Product differentiation – Examples iMac G5 was sold cheaper in the U.S. than in Europe, BUT: American version did not work with European power system Hewlett-Packard printers only work with regional-coded link cartridges Nintendo‘s Gameboy Advanced, which is 30 % cheaper in the U.S., does not work with European power system as well iPhone prices in the U.K. are cheaper than in many other European countries, BUT: have a net lock and work therefore just with o2 or Orange SIM-cards 33 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de International price discrimination process: 3. stage 1. 4. 2. 3. 5. Are there price Determination of Can the price Estimation of price Determination of differences optimal inter- differences be elasticity in the price corridor between country price held up? different countries countries? what is the optimal price? most price sensitive least price sensitive Fassnacht; M. (2012); Simon, Kucher & Partners 34 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de  exam relevant!! International price discrimination process: 4. stage 1. 4. 2. 3. 5. Are there price Determination of Can the price Estimation of price Determination of differences optimal inter- differences be elasticity in the price corridor between country price held up? different countries countries? optimal intercountry price in the exam: argue for price adjustment to profit: P = p * q - c(q) make more profit, but make arbitrage p * (12-1,5p) - c*(12-1,5p) c=2 unattractive q is qA and qB added together 12p - 1,5p^2 - 24 + 3p 15p - 1,5p^2 - 24 --> ableiten 15 - 3p = 0 q=12-1,5p variable costs 15-3p=0 I + 3p 15 = 3p I :3 q= 12 - 1,5 * 5 p=5 q=4,5 P = p*q - c = 5*4.5 - Fassnacht, M. (2012); Fassnacht, 1996, pp. 57-59 35 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de International price discrimination process: 5. stage 1. 4. 2. 3. 5. Are there price Determination of Can the price Estimation of price Determination of differences optimal inter- differences be elasticity in the price corridor between country price held up? different countries countries? adapted from Simon, H./Fassnacht, M. (2009), Preismanagement, p. 551 ff. 36 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Agenda 5.1 Price-Value Positions 5.2 Price Determination 5.3 International Price Discrimination 5.4 Price Monitoring The international price management process 1 2 3 4 Strategy Analysis Price Decision Implementation Development What do we want? How do we do it today? What is the optimal price/price structure? How can prices be imposed to the market? What are we heading for? A system of rules The price management process contains: information, models, rules, To determine prices and competences, responsibilities, incentives, training To implement prices 38 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Price monitoring 1. Quantitative measures: International Conditions a) Analysis of transaction prices b) Analysis of profit margins 1. Market volume 2. Qualitative measures: 2. Political environment a) Customer satisfaction b) Price image 3. Technological changes International Customers 4. Economic situation 5. Etc. International Company International Competitors 1. Products: Product profitability 2. Salesmen: Profit margin per Competitors´ behavior across salesperson different countries and cultures 3. Influences of marketing mix instruments 39 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Universität Bremen Prof. Dr. Kristina Klein Max-von-Laue-Straße 1 Gebäude WiWi 2 F3210 [email protected] 0421 218-66970