International Pricing
Learning objectives
 Explain how internal and external
variables influence international pricing
decisions.
 Under the application of Pricing in the
international marketing perspective.
15-2
Thinkbox
 Indian IT firms provide world class services at one tenth
the cost of what the same services would cost in the
USA.
 An MBA degree costs about $8000 in India. In the US an
MBA degree costs around US$ 120,000.
 Developing a new automobile model in the US costs
about US$ 1 billion. Indica and Scorpio have been
designed, developed and produced in India totally. They
have been acclaimed abroad. Cost of design is half what
the design would costs in USA.
 Arvind netralaya performs a cataract operation including
the cost of the lens for US$12 while that very operation
costs about US $ 1500 in US.
PRACTICAL INSIGHT 1
 Dip Trix, a successful US brand was launched
by General Mills in 2005 in the Indian market.
 Targeted at 4 -12 years of children.
 Packaged in a twin tray.
 Children can eat the cookies in their own way
either dipping the cookies in cream, licking the
cream with fingers or making a cookie and
cream sandwitch.
 Dip Trix has gone for a penetration pricing
strategy by offering the product at reasonable
price of Rs. 5.
PRACTICAL INSIGHT 2
 The Harley Davidson (HD) corporation has
been dominating the motorcycle industry for
many decades.
 HD still has a 30% price premium.
 In 2006, HD decided to enter the Indian
market through the sourcing route i.e. not to
produce the bike but to import it.
 Given the high import duty of 60% for
imported bikes the price of HD in India was
estimated to be between Rs. 4 – 14 Lakh.
 In 2007, HD decided to suspend plans to enter the
market but again import duties continued to be
60%. While this time the company succeeded in
gaining permission to enter the market because of
European emission standards that are accepted in
India.
 In early 2008, negotiations at the India –US trade
forum inform the co. that they could import and
sell the bikes in the country through dealer
networks and not directly to the customers but no
change in the import duties.
 With an already high end price tag which
will be doubled with import duties and
taxes the bike can only target a niche
market of affluent customers?
 Does the image justify the price level?
PRACTICAL INSIGHT 3
 In the battle to out blade the
competition Gillette launched a five
bladed razor called Fusion.
 Fusion is the first entirely new men’s
razor system launched by Gillette
since Mach3.
 Is it possible for Gillette to standarize
pricing across borders for its new five
blade fusion.
Gillette relies on
product line pricing
www.gillette.com/
15-9
Pricing
 Only area of global marketing mix
where policy can be changed rapidly
without large direct cost implications
 Decisions in global markets are
affected by complexity of influential
factors
15-10
Internal factors affecting
international pricing decisions
Firm-level factors
 Corporate and
marketing objectives
 Competitive strategy
 Firm positioning
 Product development
 Production location
 Market entry modes
Product factors
 Stage in PLC
 Place in product line
 Most important
product features
 Product positioning
 Product cost
structure
15-11
External factors affecting
international pricing decisions
Environmental
factors
 Government
influences and
constraints
 Inflation
 Currency fluctuations
 Business cycle stage
Market factors
Customers’
perceptions
Customers’ ability to
pay
Nature of competition
Competitors’
objectives, strategies,
strengths and
weaknesses
Grey market appeal
15-12
What is this?
What price-related phenomenon
is caused by the summation of all
cost factors in the distribution
channel including ex-works price,
shipping costs, tariffs, and
distributor mark-up?
Price escalation
15-13
Tactics for
countering price escalation
 Rationalizing the distribution process
 Lowering the export price from the
factory
 Establishing local production of the
product
 Pressurizing channel members to
accept lower profit margins
15-14
Factors influencing
customer sensitivity to price (1)
 More distinctive product
 Greater perceived quality of products
 Consumers less aware of substitutes
in the market
 Difficulty in making comparisons
 Proportion price represents of total
expenditure of the customer
15-15
Factors influencing
customer sensitivity to price (2)
 Perceived benefit for customer
increases
 Product is used in association with a
product bought previously, such that
components and replacements are
highly priced
 Costs are shared with other parties
 Product or service cannot be stored
15-16
Basic approaches to
pricing across countries
Price
standardization
Price
differentiation
15-17
Figure - Structural factors
of standardized
versus differentiated pricing
15-18
Source: Reprinted from European Management Journal, Vol. 12, No. 2, Diller. H. and Bukhari, I. (1994) ‘Pricing conditions in the European Common Market’, p. 168, Copyright 1994, with permission from Elsevier
What is this?
When a customer requires one
global price per product from the
supplier for all its foreign SBUs
and subsidiaries, a _____ has
been requested.
Global pricing contract
15-19
What is this?
What term is used to describe the
prices charged for intracompany
movement of goods and services?
Transfer pricing
15-20
Distribution Decisions in the
International Marketing
Learning objectives (1)
 Explore the determinants of
Distribution decisions.
 Discuss the key points in putting
together and managing International
marketing channels
 Discuss the factors influencing
channel width
 Explain what is meant by integration
of the marketing channel
16-22
Think box
 The Distribution network in Japan has more
wholesalers and retailers per capita than any other
industrial nation.
 A consequence of the more complex Japanese
distribution system is the considerable price
escalations.
 This distribution serves social and economic
purposes. Channel members are like family.
 Relationships to each other are tightly interlocked
by emotion and tradition.
 Inefficient channel members are retained.
Figure - Japanese car
parts distribution channels
Sources: Cateora (1993); Onkvisit and Shaw (1993); Pirog and Lancioni (1997).
Figure - US car
parts distribution channels
Sources: Cateora (1993); Onkvisit and Shaw (1993); Pirog and Lancioni (1997).
Figure - A hypothetical channel sequence in
the Japanese consumer market
Source: Pirog and Lancioni, 1997, p. 57. Adapted with kind permission from International Journal of Physical Distribution and Logistics Management, Emerald Group Publishing Ltd.
Practical Insight 1
 Wal Mart has set up Wal Mart Global Procurement
company in Bangalore to expand business in India.
 Wal – Mart has a dedicated factory certification
department that inspects supplier’s facilities four
times a year.
 Wal Mart engage audit firms PWC and Dun &
Bradstreet to check quality and audit accounts.
 Wal Mart is particular about work conditions at
sourcing bases which means no child labour, clean
bathrooms and fire fighting equipment at every
floor.
 Link Pen and Plastics Limited supplied
30 million pens to Wal Mart. The firm
tied up with Mitsubishi Pencil
Company of Japan to have access to
latest technology.
 Welspun and Trident are other
examples with whom Wal Mart is
doing business in India.
Practical Insight 2
 Bata operates almost 4700 stores around the
world with an objective to consistently be the
most satisfying store to shop for well priced
and fashionable footwear.
 City Store - The Bata City Store gives you
unique shopping experience as it showcases
the latest collections for footwear of local and
international brands. The store ambience is
designed to create a lifestyle store
 Family store : Bata is the world's leading
family chain thanks to the wide assortment of
every fashion footwear available in our stores.
The products are primarily the Bata brand
 Superstore : Bata Superstore offers a wide
assortment of fashion, casual and athletic for
the entire family. Located primarily in urban
and suburban shopping centre, these spacious
stores offer the best value by providing good
quality shoes at great prices
 Factory store : Factory stores are the largest
and the most value-oriented stores of our retail
chain. They are ideally located in power
centers, commercial parks and outlet centers
with easy parking facilities.
Thus a firm operating in International markets
may evolve its own system of retail stores so
as to project a uniform market image globally.
Practical Insight 3

a.
b.
c.
d.
e.
ITC E-Choupal offers five distinct services
Information: Daily weather forecasts, pricing
Knowledge: farming methods
Purchase: seeds, fertilizers and pesticides.
Sales: Sale of crops
Development Work: Cattle breed
improvement, water harvesting techniques.
Practical Insight 4
 Since the late 1800s the south african MNC De
Beers has regulated both the Industrial and
gemstone diamond markets.
 Mark up on Diamonds
Stage of
Distribution
Mark Up (%)
Cost of Mining
Mine Sales
Dealers of rough
gems
Cutting units
Wholesaler units
Retail
67
20
Average Value of
0.5 Carat Gem
($/carat)
100
167
200
200
15
100
400
460
920
 In 2001 De Beers made a joint venture with Louis
Vuitton.
 As part of the agreement De Beers SA has
transferred to De Beers LV the worldwide rights to
use the De Beers Brand name and it will be sold
exclusively through De Beers Stores.
External factors
affecting channel decisions
Customer characteristics
Nature of product
Nature of demand
Competition
Legal regulations/ local business practices
Internal decisions
concerning channel structure





Types of intermediaries
Coverage
Length (number of levels)
Control resources
Degree of integration
Internal decisions concerning management
and control of channel





Screening and selecting intermediaries
Contracting
Motivating
Controlling
Termination
Internal decisions concerning
management of channel logistics
 Physical movement of goods through
channel system




Order handling
Transportation
Inventory
Storage/warehousing
Market coverage
Coverage can refer to
geographical areas of a country
or the number of retail outlets (as
a percentage of all retail outlets).
Approaches to
market coverage
Intensive
Selective
Exclusive
Figure -Intensive distribution
M = Manufacturer
W= Wholesaler
R = Retailer
Figure - Selective distribution
M = Manufacturer
W= Wholesaler
R = Retailer
Figure - Exclusive distribution
M = Manufacturer
W= Wholesaler
R = Retailer
Entry Strategy for
International Markets
Going Global - Decisions
Should I Go
Abroad?
Which Markets
Should I Enter?
How Should I
Enter Them?
How Should I Market
My Product?
Learning Objectives:
 To understand the determinants on which entry
mode depends.
 To explain various entry modes for international
markets
 To explain different theories of
internationalization.
 To evaluate selection criteria for entry mode
decisions
Determinants of International Entry Modes
Industry-specific factors
• Industry´s degree of internationalisation
• Choice of entry mode by key competitors
Many Unknown; task is not
also to
Target Market Factors
• Government policies
•Availability of local
distributors
• Local infrastructure
only to maximize return but
minimize risk
Home-country factors
Entry Mode
•Policies on investment abroad
• Bilateral agreements
• Domestic market size and
competition
Firm-Specific factors
• Firm´s degree of internationalisation
• Marketing objectives
• Nature of product
• Availability of resources
Different modes of entry possible
Export mode
• Indirect
Intermediate mode
Contractual
• Licensing
• Franchising
• Strategic Alliances
• Joint Ventures
• Direct
↓
Low risk,
Low control,
High flexibility
Investment
• Acquisition
• Create new
subsidiary
↓
↓
Shared risk,
Shared control,
Split Ownership
High risk,
High control,
Low flexibility
The Choice of Entry Modes: A Hierarchical
Model
Source: Adapted from Y. Pan & D. Tse, 2000, The hierarchical model
of market entry modes (p. 538), Journal of International Business
Studies, 31: 535–554.
Strategic Decisions
On
Risk vs. Control
Exporting
High
Risk
Exporting
Low
Control
High
Definition: a mode of entry involving production of a product
in one country and shipping it to another country for sale.
Degree of Export
Involvement
Direct
Exporting
Indirect
Exporting
Contractual
Intermediate Modes of Entry
Licensing
High
Risk
Licensing
Exporting
Low
Control
High
Definition: an agreement in which an organization grants another
organization the right to use a trademark, a patented product or a process.
Licensing (Contd.)
Examples of licensing
abound in drugs
Playboy used to take licensed material
from Lui
Advantages of Licensing
 Financing international expansion
 Reducing expansion risks
 Minimizing the black market
 Upgrading production technologies
 Transportation cost is high
Disadvantages of Licensing
 Restricting future activities
 Reducing quality and consistency
 Hindering marketing efforts
 Assisting competitors
NEED CAREFUL NEGOTIATION
Franchising
Franchising
Franchising
Advantages
Disadvantages
 Low-cost, lowrisk mode of
entry
• Hard to manage a
 Rapid expansion
• Loss of flexibility in
 Knowledge of
local managers
large number of
franchises
franchising
Turnkey Projects
Advantages
Disadvantages
Focus on
Core Competencies
Politics over
Know-How
Obtain Designs
for Infrastructure
Future
Competition
Strategic Alliances
Strategic Alliances
Share
Investment Cost
Tap Into a
Competitor’s
Strengths
Advantages of
Strategic Alliances
Gain Access to
Distribution
Channels
Reduce
Risk Exposure
Disadvantages of Strategic Alliances
Conflict
with Partners
Future
Competition
Joint Ventures
High
Joint Ventures
Risk
Licensing
Exporting
Low
Control
High
Definition: a business agreement in which two or more organizations
share management of an enterprise.
Joint Ventures
Technology supplier company get foothold
Option when indianisation or mexicanisation is in force
Reduce Risk
Local every where
Penetrate
International
Markets
Advantages
of Joint Ventures
International
Distribution
Network
Defensive
Reasons
Disadvantages
of Joint Ventures
Conflict
Loss of
with Partners
Control
Investment
Modes of Entry
Direct Ownership
High
Direct Ownership
Joint Ventures
Risk
Licensing
Exporting
Low
Control
High
definition: A mode of entry involving an organization setting
new facilities or acquiring a foreign firm in the same line of business.
Direct Ownership
Wholly Owned Subsidiaries
Advantages
Disadvantages
Complete
Managerial Control
Expensive to
Start and Maintain
Compatible with
Global Strategies
High Risk
Exposure
Entry mode and Means of Organising Marketing
Alternate ways of marketing
Mode of Entry
Independent
agent
Joint with alliance Own sales
Subsidiary
partners
Exporting
Absolut Vodka
with Seagram in
US
EMI with Toshiba
in Japan
Volvo in US
Licensing
Disney in Japan
with Japanese
licensee
Microsoft with
ASCII in Japan
Initially
Nike in Asia.
FDI
LG in USA with
Sears private
lebel
Mitsubishi
manufacture car
at Illinois with
Chrysler
P&G
manufacture and
sale through own
subsidiary in
Europe
Local marketing effort can be exercised irrespective of entry mode
Which mode of entry should be chosen?
Strategy &
Emerging
High Growth
Mature
Indirect
export
Direct
Export
Market situation
Incremental Posture
( Few resources ,
tentative, wants to be
flexible )
Protected Posture
(protected trade secret,
patentable know-how,
potentiality abroad is
clear,self imposed limit)
Control Posture (has
FSA, Large enough to
handle resource
disadvantages)
Indirec
t
export
JV
WOS
Indirect
export
Acquisition
/alliance
WOS
Acquisition
/alliance