Product Pricing & Physical Distribution PDF

P RODUCT PRICING & PHYSICAL DISTRIBUTION Chapter-11 & 12 1  Key Points  Review the basic pricing concepts that underlie a successful global marketing pricing strate...

P RODUCT PRICING & PHYSICAL DISTRIBUTION Chapter-11 & 12 1  Key Points  Review the basic pricing concepts that underlie a successful global marketing pricing strategy  Identify the different pricing strategies and objectives that influence decisions about pricing products in global markets Things to  List some of the environmental influences that impact prices Discuss  Apply the ethnocentric/polycentric/ geocentric framework to decisions regarding price  Explain some of the tactics global companies can use to combat the problem of gray market goods  Assess the impact of dumping on prices in global markets 2  INTRODUCTION  International trade leads to lower prices for goods, reducing inflation rates. In a global market, the law of one price ensures customers can access the best products at the best price, particularly in industrial goods like oil, aircraft, diamonds, and integrated circuits. All other things being equal, a Boeing 787 costs the same worldwide. Many consumer goods sold worldwide are sold in national markets, where costs, regulations, and industry rivalry vary. Because of these differences in national markets, the global marketer must develop pricing systems and pricing policies that take into account price floors, price ceilings, and optimum prices. 10-3 BOUNDARIES FOR MARKET PRICE Product costs establish the price floor Prices for comparable substitute products create the price ceiling Price Ceiling Optimum Price Price Floor 4  PRICING STRATEGIES  Market Skimming The market skimming pricing strategy is often part of a deliberate attempt to reach a market segment that is willing to pay a premium price for a particular brand or for a specialized or unique product.  Companies that seek competitive advantage by pursuing differentiation strategies or positioning their products in the premium segment frequently use market skimming.  This might occur at the introduction stage of the product life cycle 5  PRICING STRATEGIES Penetration Pricing A market penetration pricing strategy calls for setting price levels that are low enough to quickly build market share. Historically, many companies that used this type of pricing were located in the Pacific Rim. Scale-efficient plants and low-cost labor allowed these companies to blitz the market. Charging a low price in order to penetrate the market quickly frequently pursued by companies that enjoy cost-leadership positions in their industry Appropriate to saturate the market prior to imitation by competitors 6  PRICING STRATEGIES Captive Pricing When formulating pricing strategies for products such as video game consoles, DVD players, and smartphones, it is necessary to view these products in a broader context. A video game console has no value without video game software, and a DVD player has no value without movies available on DVD. Likewise, a razor handle has no value without blades. Thus, Gillette can sell a single Mach3 razor for less than $5—or even give the razor away for free— because it knows that over a period of years, the company will make significant profits from selling packages of replacement blades. Companion Product Pricing Method 7  PRICING STRATEGIES Target Costing  Determine the segment(s) to be targeted, as well as the prices that customers in the segment will be willing to pay. Target costing ensures that development teams will bring profitable products to market not only with the right level of quality and functionality but also with appropriate prices for the target customer segment’s target costs to the product’s various functions. Calculate the gap between the target cost and the estimated actual production cost. Obey the cardinal rule: If the design team can’t meet the targets, the product should not be launched. Compute overall target costs with the aim of ensuring the company’s future profitability 8  PRICING STRATEGIES  Consideration for setting prices on goods that cross borders:  Most of the products especially popular consumer electronics products, i.e. Laptops, and smartphones exemplify many characteristics of today’s global supply chain. Finished goods that cross borders have a cost associated with the actual production; the total cost depends on the ultimate market destination, the mode of transport, tariffs, various fees, handling charges, and documentation costs.  Export price escalation is the increase in the final selling price of goods traded across borders that reflects these factors. The following is a list of eight basic considerations for those whose responsibility includes setting prices on goods that cross borders 9  PRICING STRATEGIES  Consideration for setting prices on goods that cross borders: 1. Does the price reflect the product’s quality? 2. Is the price competitive given the local market conditions? 3. Should the firm pursue market penetration, market skimming, or some other pricing objective? 4. Which type of discount (trade, cash, quantity) and allowance (advertising, trade-off) should the firm offer its international customers? 5. Should prices differ with the market segment? 10  PRICING STRATEGIES 6. What pricing options are available if the firm’s costs increase or decrease? 7. Are the firm’s prices likely to be viewed by the host- country government as reasonable or exploitative? 8. Do the foreign country’s dumping laws pose a problem? Companies frequently use a method known as COST- PLUS OR COST-BASED PRICING when selling goods outside their home-country markets. Cost-based pricing is based on an analysis of internal (e.g., materials, labor, testing) and external costs (e.g. Tariff, transportation). 11 ENVIRONMENTAL INFLUENCES ON PRICING DECISIONS  Currency Fluctuations  Inflationary Environment  Government Controls, Subsidies, Regulations  Competitive Behavior  Sourcing 12 PRICING POLICY ALTERNATIVES A company has three positions it can take on worldwide pricing.  Extension or Ethnocentric pricing  Adaptation or Polycentric pricing  Geocentric 13  EXTENSION PRICING  Also known as Ethnocentric Pricing technique  Per-unit price of an item is the same across the world no matter where the buyer is located  Therefore, Importer needs to absorb freight and import duties  key advantage of the method is its extreme simplicity because it does not require information on competitive or market conditions for implementation  Its main disadvantage is that the ethnocentric approach does not respond to the competitive and market conditions.  Fails to respond to each national market 14  ADAPTATION PRICING  Also known as Polycentric Pricing technique  Permits subsidiaries or affiliate managers or independent distributors to establish price as they feel is most desirable in their circumstances depending on local factors such as competition, wages, taxes, and advertising rates.  Worldwide price coordination is not the objective and a study of European industrial exporters found that companies utilizing independent distributors were the most likely to utilize polycentric pricing. Keegan and Green, Chapter 12 15  GEOCENTRIC PRICING  It is more dynamic and proactive than the other two as it adopts Intermediate course of action  Geocentric pricing is based on the realization that unique local market factors should be recognized when arriving at pricing decisions. These factors include Local costs Income levels Competition Local marketing strategy  an approach to global pricing in which affiliate or subsidiary companies supply information about local market conditions and the corporation then sets prices accordingly to maximize profits in each national market. 16  GRAY MARKET GOODS  Trademarked products are exported from one country to another where they are sold by unauthorized persons or organizations  This practice, known as parallel importing, occurs when companies employ a polycentric, multinational pricing policy that calls for setting different prices in different country markets. Gray markets can flourish when a product is in short supply, when producers employ skimming strategies in certain markets, or when the goods are subject to substantial markups. 17  DUMPING  Sale of an imported product at a price lower than that normally charged in a domestic market or country of origin.  Occurs when imports sold in the US market are priced at either levels that represent less than the cost of production plus an 8% profit margin or at levels below those prevailing in the producing countries  To prove, both price discrimination and injury must be shown 18  PRICE FIXING  Companies collude and secretly agree to set similar prices for their product.  Companies that collude in this manner are usually trying to ensure higher prices for their products than would generally be available if markets were functioning freely.  For example, in 2011 the European Commission determined that P&G, Unilever, and Henkel had conspired to set prices for laundry detergent 19  TRANSFER PRICING Pricing of goods, services, and intangible property bought and sold by operating units or divisions of a company doing business with an affiliate in another jurisdiction For example, Toyota subsidiaries both sell to, and buy from, each other. Transfer pricing is an important topic in global marketing because goods crossing national borders represent a sale; therefore, their pricing is a matter of interest both to the tax authorities, which want to collect a fair share of income taxes, and to the customs service, which wants to collect an appropriate duty on the goods 20  COUNTERTRADE  In recent years, many exporters have been forced to finance international transactions by taking full or partial payment in some form other than money. Countertrade occurs when payment is made in some form other than money  Options  Barter  Counter-purchase  Offset  Compensation trading  Cooperation agreements  Switch trading 21 PHYSICAL DISTRIBUTION Chapter-12 22  INTRODUCTION A critical element of a firm’s marketing mix is its Distribution Strategy (i.e., marketing channels): the means it chooses for delivering the product to the consumer. This illustrates a typical distribution system consisting of a channel that includes a wholesale distributor and a retailer. If the firm manufactures its product in a particular country, it can sell directly to the consumer, to the retailer, or to the wholesaler. The same options are available to a firm that manufactures outside the country. Plus, this firm may decide to sell to an import agent, which then deals with the wholesale distributor, the retailer,23 or the  INTRODUCTION Distribution Channels are systems that link manufacturers to customers. Although channels for consumer products and industrial products are similar, there are also some distinct differences between them. In B2C marketing consumer channels are designed to put products in the hands of people for their own use. By contrast, B2B marketing involves industrial channels that deliver products to manufacturers or other organizations that then use them as inputs in the production process or in day-to-day operations. Intermediaries play important roles in both consumer and industrial channels. A Distributor is a Wholesale Intermediary that typically carries product lines or brands on a selective basis. An Agent is an Intermediary who negotiates exchange transactions between two or more parties but does not take title to the goods being purchased or sold. 24  MARKETING CHANNELS Marketing channels exist to create utility for customers. The major categories of channel utility are: Place Utility (the availability of a product or service in a location that is convenient to a potential customer), Time Utility (the availability of a product or service when desired by a customer), Form Utility (the availability of the product processed, prepared, in proper condition, and/or ready to use), and Information Utility (the availability of answers to questions and general communication 25  MARKETING CHANNELS Choosing a channel strategy is a crucial policy decision for management as it can provide a competitive advantage and contribute to a firm's value proposition. Coca-Cola's global marketing leadership lies in its ability to create Place Utility by bringing Coke “within an arm's reach of desire”. To choose the most effective channel arrangement, the company must narrow its marketing focus to a specific market and evaluate how distribution might enhance its total value proposition  Who are the target customers, and where are they located?  What are their information requirements? What are their preferences  Howfor service?are they to the product’s or sensitive service’s price? Moreover, each market must be analyzed to determine the cost of providing channel services. 26 SIX CHANNEL STRUCTURE 27  CHANNEL STRUCTURES  Factors that influence Channel Structures for Consumer Products  Product Characteristics (degree of standardization, perishability, bulk, service requirements, and unit price)  channels tend to be longer (require more intermediaries) as the number of customers to be served increases and the price per unit decreases. The Internet and related forms of new media are dramatically altering the distribution landscape. For example, eBay pioneered the peer-to-peer marketing (p-to-p) model. Low-cost mass-market products and certain services can be sold on a door-to-door basis via a direct sales force. Tupperware’s direct-sales business model gives it an advantage in a country 28  GLOBAL RETAILING Global retailing is any retailing activity that crosses national boundaries. It has a long history: For centuries, entrepreneurial merchants have ventured abroad to seek out merchandise and ideas and to establish retail operations Global retailers serve an important distribution function. For example, when Carrefour, Tesco, and Walmart set up shop in developing countries, they provide customers with access to more products and lower prices than were available previously Retail stores can be divided into categories according to the number of square feet of floor space, the level of service offered, the width and depth of product offerings, or other criteria. Each represents a strategic option for a retailer considering global expansion 29 GLOBAL RETAILING 30  RETAIL OPERATIONS Types Of Retail Operations: Department Stores literally have several departments under one roof, each representing a distinct merchandise line and staffed with a limited number of salespeople. Departments in a typical store might include men’s, women’s, children’s, beauty aids, housewares, and toys Specialty Retailers offer less variety than department stores; that is, they are more narrowly focused and offer a relatively narrow merchandise mix aimed at a particular target market. Specialty stores do offer a great deal of merchandise depth (e.g., many styles, colors, and sizes), high levels of service from knowledgeable staff, and a value proposition that is both clear and appealing to consumers. Gap, the Disney Store, and Victoria’s Secret are examples of global retail operators that have stores in many parts of the world. In some countries, local companies operate the stores. In Japan, for example, the giant Aeon Group runs The Body Shop stores and has a joint venture with Sports Authority. 31  RETAIL OPERATIONS  Supermarkets are departmentalized, single-story retail establishments that offer a variety of food (e.g., produce, baked goods, meats) and nonfood (e.g., paper products, health and beauty aids) items, mostly on a self-service basis. On average, supermarkets occupy between 50,000 square feet and 60,000 square feet of floor space- Tesco, Walmart.  Convenience Stores offer some of the same products as supermarkets, but the merchandise mix is limited to high-turnover convenience and impulse products. Prices for some products maybe 15 to 20 percent higher than supermarket prices. In terms of square footage, these venues are the smallest organized retail stores. Most convenience stores are located in high-traffic locations and offer extended service hours to accommodate commuters, students, and other highly mobile consumers. 7-Eleven is the world’s largest convenience store chain; it has more than 64,000 locations, including franchisees, licensees, 32 and stores that the company operates itself.  RETAIL OPERATIONS  Discount retailers can be divided into several categories. The most general characteristic that they have in common is their emphasis on low prices. Full-line discounters typically offer a wide range of merchandise, including nonfood items and nonperishable food, in a limited-service format  Dollar stores sell a select assortment of products at one or more low prices. In the United States, Family Dollar Stores and Dollar Tree Stores dominate the industry. However, a recent industry entrant, My Dollar Store, is experiencing rapid international growth; it now has franchises in Eastern Europe, Central America, and Asia.  Hard discounters include retailers such as Germany’s Aldi and Lidl (“Where quality is cheaper!”) and France’s Leader Price (“Le Prix La Qualité en Plus!”). These discounters offer a limited assortment of goods—typically 1,000 to 3,000 different items—at rock-bottom prices. 33  RETAIL OPERATIONS  Hypermarkets are a hybrid retailing format combining the discounter, supermarket, and warehouse club approaches under a single roof. Size-wise, hypermarkets are huge, ranging from 200,000 to 300,000 square feet.  Supercenters offer a wide range of aggressively priced grocery items plus general merchandise in a space that occupies about half the size of a hypermarket. Supercenters are an important aspect of Walmart’s growth strategy, both at home and abroad.  Superstores (also known as category killers and big-box retail) is the label many in the retailing industry use when talking about stores such as Home Depot and IKEA Outlet Stores are a variation on the traditional shopping mall: retail operations that allow companies with well-known consumer brands to dispose of excess inventory, out-of-date merchandise, or factory seconds. To attract large numbers of shoppers, outlet stores are often grouped together in outlet malls 34  RETAIL OPERATIONS  Shopping Malls consist of a grouping of stores in one place. Developers assemble an assortment of retailers that will create an appealing leisure destination; typically, one or more large department stores serve as anchors. Shopping malls offer acres of free parking and easy access from main traffic thoroughfares. Historically, malls were enclosed, allowing shoppers to browse in comfort no matter the weather outside. More recently, the trend has been toward outdoor shopping centers, now called “lifestyle centers.” Food courts and entertainment encourage families to spend several hours at the mall. In the United States, malls sprang up as people moved from city centers to the suburbs. Today, global mall development reflects the opportunity to serve emerging middle-class consumers who seek both convenience and entertainment. The world’s five largest malls are in Asia. The reasons for their presence in this region are clear-cut: Economic growth led to rising incomes; in addition, tourism is booming in Asia. 35  GLOBAL RETAILING MARKET EXPANSION STRATEGIES Retailers can choose from four market- entry expansion strategies when expanding outside the home country. these strategies can be explained using a matrix that differentiates between (1) markets that are easy to enter versus those that are difficult to enter and (2) culturally close markets versus culturally distant ones.  The four entry strategies indicated by the matrix are Organic, Franchise, Chain Acquisition, and Joint Ventures & Licensing 36  GLOBAL RETAILING MARKET EXPANSION STRATEGIES  The upper half of the matrix encompasses quadrants A and D and represents markets in which shopping patterns and retail structures are similar to those in the home country. In the lower half of the matrix, quadrants B and C represent markets that are significantly different from the home-country market in terms of one or more cultural characteristics  The right side of the matrix, quadrants A and B, represents markets that are difficult to enter because of the presence of strong competitors, location restrictions, excessively high rent or real estate costs, or other factors.  In quadrants C and D, any barriers that exist are 37 relatively easy to overcome.  GLOBAL RETAILING MARKET EXPANSION STRATEGIES Organic Growth occurs when a company uses its own resources to open a store on a greenfield site or to acquire one or more existing retail facilities from another company. In 1997, for example, M&S announced plans to expand from one store to four in Germany via the purchase of three stores operated by Cramer and Meerman. When Richard Branson set up the first Virgin Megastore in Paris, he did so by investing millions of pounds in a spectacular retail space on the Champs-Élysées. From the perspectives of M&S and Virgin, the retail environments of Germany and France are both culturally close and easy to enter. The success of this strategy hinges on the availability of company resources to sustain the high cost of the initial investment. 38  GLOBAL RETAILING MARKET EXPANSION STRATEGIES Franchising, shown in quadrant C, is the appropriate entry strategy when barriers to entry are low, yet the market is culturally distant in terms of consumer behavior or retailing structures. Franchising is a contractual relationship between two companies. In this arrangement, the parent company–the franchisor authorizes a franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies and practices. The key to a successful franchise operation is the ability to transfer company know-how to new markets. Benetton, IKEA, and other focused, private-label retailers often use franchising as a market-entry strategy in combination with wholly owned stores that represent organic growth 39  GLOBAL RETAILING MARKET EXPANSION STRATEGIES Global Retailing, acquisition is a market-entry strategy that entails purchasing a company with multiple retail locations in a foreign country. This strategy can provide the buyer with quick growth as well as access to existing brand suppliers, distributors, and customers. For example, when Walmart first entered the Japanese market in 2002, it did so by acquiring a 6.1 percent stake in the Seiyu retail chain. In 2007, Walmart upped its stake to 95.1 percent; the following year, Seiyu and its 414 stores became a wholly owned subsidiary. Now Walmart is seeking to expand by making additional acquisitions. As Walmart Asia CEO Scott Price explained, “We see scale as being the next level of being able to change the value proposition for Japanese customers.” Organic growth is not an option, however: “We do not want to build more retail in Japan. The last thing Japan needs is more retail space,” Price said. 40  GLOBAL RETAILING MARKET EXPANSION STRATEGIES  Joint Ventures & Licensing, Global retailers frequently use these strategies to limit their risk when targeting unfamiliar, difficult-to-enter markets. For example, Barneys New York licensed its name to Barneys Japan for a period of 10 years; Saks Fifth Avenue has licensed stores in the Middle East. In some countries, local regulations mandate the use of joint ventures. For example, prior to 2005, China had regulations that required foreign retailers entering the market to have local partners. In 2005, Chinese authorities liberalized the country’s retail climate, and today IKEA and other retailers that initially used joint ventures as an entry strategy are shifting to wholly owned stores in China. 41  CONCLUSION Achieving retailing success outside the home-country market is not simply a matter of consulting a matrix and choosing the recommended entry strategy. Management must also be alert to the possibility that the merchandise mix, sourcing strategy, distribution, or other format elements will have to be adapted https://today.thefinancialexpress.com.bd/first-page/superstore-sector-seeks-equal- support-to-flourish-1670522113 42