Chapter 11 International Marketing

Market Skimming

A pricing strategy designed to reach customers willing to pay a premium price for a particular brand or for a specialized product. Introduction stage of the product life cycle

Negotiated Transfer Prices

A transfer price policy that establishes prices for intracorporate transactions on the basis of the organization's affiliations.

Switch Trading

AKA triangular trade and swap ;Is a mechanism that can be applied to barter or counter trade. A third party steps into a simple barter or other counter trade arrangement when one of the parties is not willing to accept all the goods received in a transaction.

Law of one price

All customers in the market could get the best product available for the best price.

Undermining segmented pricing schemes

As noted earlier, gray markets can emerge because of price differentials that result from multinational pricing policies. However, a variety of forces—including falling trade barriers, the information explosion on the Internet, and modern distribution capabilities—hamper a company's ability to pursue local pricing strategies.

Dilution of exclusivity

Authorized dealers are no longer the sole distributors. The product is often available from multiple sources and margins are threatened.

Extension or ethnocentric pricing

Calls for the per-unit price of an item to be the same no matter where in the world the buyer is located. Importer must absorb freight and import duties. This method fails to respond to each national market.

Damage to Channel Relationships

Competition from gray market products can lead to channel conflict as authorized distributors attempt to cut costs, complain to manufacturers, and file lawsuits against the gray marketers.

Inflationary Environment

Defined as a persistent upward change in price levels. Can be caused by an increase in the money supply. Can be caused by currency devaluation. Essential requirement for pricing is the maintenance of operating margins.

Full absorption Cost Method

Defines the per-unit product costs as the sum of all past or current direct and indirect manufacturing and overhead costs.

Target Cost Process

Determine the segment(s) to be targeted, as well as the prices that customers in the segment will be willing to pay. Compute overall target costs with the aim of ensuring the company's future profitability. Allocate the 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.

Flexible cost-plus pricing

Ensures that prices are competitive in the contest of the particular market environment

Reputation and legal liability

Even though gray market goods carry the same trademarks as goods sold through authorized channels, they may differ in quality, ingredients, or some other way. Gray market products can compromise a manufacturer's reputation and dilute brand equity, as when prescription drugs are sold past their expiration dates or electronics equipment is sold in markets where they are not approved for use or where manufacturers do not honor warranties.

Competitive Behavior

If competitors do not adjust their prices in response to rising costs it is difficult to adjust your pricing to maintain operating margins. If competitors are manufacturing or sourcing in a lower-cost country it many be necessary to cut prices to stay competitive.

Free Riding

If the manufacturer ignores complaints from authorized channel members, those members may engage in ___. They may opt to take various actions to offset downward pressure on margins. These options include cutting back on presale service, customer education, and sales person training.

Incoterms

Internationally accepted terms of trade that impact prices

Offset

Is a reciprocal arrangement whereby the government in the importing country seeks to recover large sums of hard currency spent on expensive purchases such as military aircraft or telecommunications systems. "If you want us to spend government money on your exports, you must import products from our country"

Market-based transfer price

Is derived from the price required to be competitive in the global marketplace.

Counterpurchase

Is distinguished from other forms in that each delivery in an exchange is paid for in cash.

Using Sourcing as a Strategic Pricing Tool

Marketers of domestically manufactured finished products may move to offshore sourcing of certain components to keep costs down and prices competitive. China is the worlds workshop.

Price Transparency

Means that buyers will be able to comparison shop easily because goods will be priced in euros as opposed to marks, francs, or lira.

Rigid Cost-plus pricing

Means that companies set prices without regard to the eight pricing considerations

CIF Cost, Insurance, Freight

Named port of destination. Risk of loss or damage of goods is transferred to buyer once goods have passed the ship's rail

FAS Free Alongside Ship

Named port of destination. Seller places goods alongside the vessel or other mode of transport and pays all charges up to that point Break Bulk Cargo, which is noncontainerized.

Geocentric pricing

Neither fixes a single price worldwide, nor allows subsidiaries or local distributors to make independent pricing decisions. Represents an intermediate course of action. Recognizes that several factors are relevant to pricing decision; Local costs, income levels, competition, and local marketing strategy.

Vertical Price Fixing

Occurs when a manufacturer conspires with wholesalers/retailers to ensure certain retail prices are maintained.

Parallel Importing

Occurs when companies employ a polycentric, multinational pricing policy that calls for setting different prices in different country markets.

Horizontal Price Fixing

Occurs when competitors within an industry that make and market the same product conspire to keep prices high

Countertrade

Occurs when payment is made in some form other than money. Options include: Barter, counterpurchase or parallel trading, offset, compensation trading or buyback, and switch trading.

Adaptation or Polycentric Pricing

Permits subsidiary or affiliate managers or independent distributors to establish whatever price they feel is most appropriate in their market environment. Sensitive to market conditions but creates potential for gray marketing.

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.

Companion Products

Products whose sale is dependent on the sale of a primary product. Ex: Video games are dependent on the sale of video game consoles.

Price Fixing

Representatives of two or more companies secretly set similar prices for their products. Illegal act because it is anti competitive.

Dumping

Sale of an imported product at a price lower than that normally charged in a domestic market or country of origin

Delivery Duty Paid

Seller agrees to deliver the goods to the buyer at the place he or she names in the country of import with all costs, including duties, paid. "post-main-carriage" or arrival terms

CFR Cost and freight

Seller is not responsible at any point outside the factory.

Ex-Works (EXW)

Seller places goods at the disposal of the the buyer at the time specified in the contract; buyer takes delivery at the premises of the seller and bears all risks and expenses from that point on.

FOB Free on Board

Seller's responsibility does not end until goods have actually been placed aboard ship. Typically in containers

Export Price Escalation

The increase in the final selling price of goods traded across borders that reflects these factors.

Barter

The least complex and oldest form of bilateral, non-monetary countertrade. A direct exchange of goods or services between two parties.

Price Discrimination

The practice of setting different prices when selling the same quantity of "like quality" goods to different buyers.

Market Holding Strategy

The use of the flexible cost-plus method to reduce prices in response to unfavorable currency swings

Compensation trading

This form of countertrade, also called buyback, involves two separate and parallell contracts. In one contract, the supplier agrees to build a plant or provide plant equipment, patents or licenses, or technical, managerial, or distribution expertise for a hard currency down payment at the time of delivery. In the other contract, the supplier company agrees to take payment in the form of the plant's output equal to its investment (minus interest) for a period of as many as 20 years.

Gray Market Goods

Trademarked products are exported from one country to another where they are sold by unauthorized persons or organizations. Occurs when products are in short supply, when producers use skimming strategies in some markets, and when goods are subject to substantial mark-ups.

Cost-based transfer pricing

Uses an internal cost as the starting point in determining cost.

Dilution of exclusivity, Free riding, damage to channel relationships, undermining segmented pricing schemes, and reputation and legal liability.

What are some gray market issues?

Dumping legislation, Resale price maintenance legislation, Price Ceilings, and General reviews of price levels.

What are the types of policies and regulations that affect pricing decisions?

Require funds to be noninterest-bearing accounts for a long time. Restrict profits taken out of the country and limit funds paid for imported material. Restrict Price Competition

What might foreign governments also enforce?

Intracorporate Exhanges

Which are transactions between buyers and sellers that have the same corporate parent.

Cost-plus or Cost Based Pricing

prices based on an analysis of internal and external costs.

Penetration Pricing

setting price levels that are low enough to quickly build market share. Charging a low price in order to penetrate the market quickly.