Chapter 10 Pricing Decisions
Lecturer: Minli Wan
Theoretical Framework of Marketing Mix
Contents
Pricing concepts and factors affecting pricing
decisions
Global pricing objectives and strategies
Environmental influences on pricing decisions
Three policy alternatives in global pricing
Additional issues in global pricing
What Is Price?
The amount of money charged for a product or
service, or the sum of the values that consumer
exchange for the benefits of having or using the
product or service:
The only element in the marketing mix that brings in
the revenues. All the rest are costs.
Communicates the value positioning (价值定位) of the
products.
Pricing Decisions & Major Pricing Considerations
Pricing decisions are a critical element of the marketing
mix that must reflect product costs, competitive factors and
customer perceptions of product value.
Boundaries for market price:
Price floor: Price costs establish the price floor (产品成本建立
价格下限) – No profit below this price;
Price ceiling: Prices for comparable substitute products create
the price ceiling ( 替代产品的对比价格建立价格上限 ) – No
Factors Affecting Pricing Decisions
Marketing Objectives
Marketing Mix Strategy
Costs
Organizational Considerations
Who set the price within the company?
Top management
Marketing / Sales department
Product line managers
Price range for negotiation by sales representatives
Nature of Market
Buyer Perceptions of Price / Value
Price sensitivity varies among market segments
and across different products (i.e., necessary
products vs. luxury products):
Marketers need to know buyers’ acceptable range
of prices and sensitivity toward price changes:
• Price elasticity is a measure of the sensitivity of
demand to changes in price (Price elasticity of
demand = % change in quantity demanded / %
change in price)
Competition and Other
Environmental Factors
Competition:
Competitors’ costs, prices, offerings and strategies
Product life cycles
Other environmental factors:
Economy, resellers (代理商,经销商,分销商), government, etc.
Global Pricing Objectives and Strategies
Managers must determine pricing objectives and strategies
for achieving those objectives. The overall goal may be to
contribute to an internal performance measure such as:
Unit sales (单位产品销售额)
Market share (市场份额，市场占有率)
Return on investment = Net profit after taxes / Total assets (投资
回报率)
Price is integral to the total positioning strategy, and the
pricing strategy for a particular product may vary from
country to country (价格是整个定位战略不可分割的一部分, 一
个特定产品的定价策略可能因国家的不同而不同):
A product may be positioned as a low-priced, mass market product
in some countries while premium-priced, niche product in other
countries (e.g., Stella Artois beer).
Global Pricing Objectives and Strategies
Pricing objectives also vary depending on a product’s lifecycle stage (introduction, growth, maturity, decline) and the
country’s specific competitive situation (定价目标可能依产品
生命周期阶段和国家的具体竞争状况而不同).
Global pricing approaches:
Market skimming pricing (市场撇脂定价法，高价法);
Penetration pricing (渗透定价法);
Companion products pricing (补充品定价法);
Target-cost pricing (目标-成本定价法, 反向或倒推定价法);
Cost-based/Cost-plus pricing (成本导向/成本加成定价法).
Market Skimming Pricing
and Financial Objectives
With the aim of achieving specific financial goals (ROI,
profit and rapid recovery of product development costs),
firms charge a high, premium price for its new product.
Often part of a deliberate attempt to reach a market
segment that is willing to pay a premium price for a
particular brand or a specialized or unique product:
This strategy is frequently used:
By the companies seeking competitive advantage through
pursuing differentiation strategies or positioning their
products in the premium segment (高价市场区隔);
In the introduction phase of product life cycle when both
production capacity and competition are limited.
Market Penetration Pricing
and Non-Financial Objectives
Calls for setting price levels that are low enough to
penetrate market and build market share quickly (nonfinancial goals).
Often means that the product may be sold at a loss for a
certain length of time.
This strategy is frequently used by the companies:
Enjoying cost-leadership positions in their industry (常常为行业
内享有成本领先地位的公司所用);
Launching new products that are not innovative enough to
qualify for patent protection => This strategy can be a means of
achieving market saturation before competitors copy the
product (适用于创新程度不足以获得专利保护资格的新产品 => 这种策
略可以使公司的产品在竞争对手模仿以前就使市场达到饱和状态).
Companion Products Pricing补充品定价法
Companion products are the ones whose sale is
dependent on the sale of primary product (补充品的
销售依赖于主产品的销售):
A video game player/console is worthless without games,
but the sale of video games is dependent on the sale of the
game console (视频游戏依赖于销售游戏控制台).
Also called “razors and blades pricing”: A razor handle is
worthless without blades, but “If you make money on the
blades, you can give away the razors.”
Producers often price their main products low and set high
markups on the supplies.
The fixed amount should be low enough to induce usage of
the service; profit can be made on the variable fees.
Companion Products Pricing补充品定价法
互补产品：是指两种或两种以上功能互相依赖、需要配合使
用的商品，如剃须刀架和刀片，汽车和汽油，照相机和胶卷
等。
某些市场营销者认为：只有增加其中一种产品的供应或降低
一种产品的价格，人们对另外一种产品的需求才会上升。
互补产品定价法是指：把价值高而购买频率低的主件价格定
得低些，而对与之配合使用的价值低而购买频率高的易耗品
价格适当定高些 => 一旦主件带动次件，利润就源源而来。
Companion Products Pricing补充品定价法
Target-cost Pricing 目标成本定价法
(Reverse Pricing 反向或倒推定价法)
The target cost process is sometimes known
as design to cost (目标成本定价法有时被理
解为根据成本来设计).
Japanese companies have traditionally
approached cost issues in a way that the
planned selling price minus the desired
profit is calculated, resulting in a target cost
figure (计划出售价格减去预期的利润的形成目
标成本图).
This approach will result in substantial
production savings and competitively-priced
products in the global marketplace.
The Target-Costing Process (p. 271)
.
The Target-costing Process
Begin with market mapping ( 市 场 计划), product
definition and positioning.
Determine the segment(s) to be targeted and the prices
customers in the segment will be willing to pay (决定目
标市场以及目标市场中客户愿意支付的价格).
Compute overall target costs with the aim of ensuring
the company’s future profitability (以保证公司将来盈利
性为目标来计算总的目标成本).
Allocate the target costs to the product’s various
functions, and calculate the gap between the target cost
and the estimated actual production cost (将成本分配到
产品的各个功能环节，并计算目标成本与预期实际生产成本
之间的差距).
The Target-costing Process (Cont’d)
Allocate the target costs…:
Think of debits and credits in accounting: Because the target
cost is fixed, additional funds allocated to one subassembly
team for improving a particular function must come from
another subassembly team；
Only at this point are design, engineering and supplier pricing
issues dealt with; extensive consultation between all value
chain members is used to meet the target (产品设计，工程以
及供应商定价问题是在这一节点处理的;为实现目标成本
，所有价值链成员要进行广泛的磋商).
Obey the cardinal rule: If the design team can’t meet the
targets, the product should not be launched （遵守基本
原则: 如果设计团队不能实现目标成本，产品就不能上市）.
Cost-plus Pricing
Cost-based pricing is based on an
analysis of internal and external costs (企
业在为产品定价是，考虑自身的生产成本和
消费者的使用和维护成本).
Firms complying with western cost
accounting principles use the full
absorption cost method (公司使用西方会
计原则使用完全成本法):
Per-unit product costs are the sum of all past
or current direct and indirect manufacturing
and overhead costs (单位产品成本过去的总和
或当前的直接和间接制造和管理成本).
Cost-plus Pricing
Cost-plus pricing: A pricing method that starts with
full product costs (fixed and variable costs) and
then add a standard markup (以产品成本为基础，加
上预期利润，确定产品的价格水平). => It is the most
commonly used pricing approached by companies.
Cost-plus Pricing
Rigid cost-plus pricing means that companies set prices
without regard to the eight considerations listed below (固
定成本加成法意味着公司指定不按市场状况而调整的价格):
1.
2.
3.
4.
5.
6.
7.
8.
Does the price reflect the product’s quality?
Is the price competitive given local market conditions?
Should the firm pursue market penetration, market skimming or
some other pricing objective?
What type of discount (cash, quantity) & allowance (advertising,
trade-off) should the firm offer its international customers?
Should prices differ with market segment?
What pricing options are available if the firm’s costs increase or
decrease? Is demand in the international market elastic or inelastic?
Are the firm’s prices likely to be viewed by the host-country
government as reasonable or exploitative?
Do the foreign country’s dumping laws pose a problem?
Cost-plus Pricing
Flexible cost-plus pricing (弹性成本加成法):
Is frequently used by experienced exporters and global
marketers, who acknowledges the importance of the eight
criteria listed earlier and realize that the rigid cost-plus
approach can result in severe price escalation, with the
unintended result that exports are priced at levels above
what customers can pay;
Is used to ensure that prices are competitive in the context
of the particular market environment (确定在特定的市场环
境中价格有竞争力)；
Sometimes it incorporates the estimated future cost
method (未来成本估计法) to establish the future cost for all
component elements.
Terms of the Sale 销售条件
In making global pricing decisions, it’s necessary to factor in
external considerations, e.g., the added cost associated with
shipping goods long distances across national boundaries.
Every commercial transaction is based on a contract of sale.
The following activities must be performed when goods
cross international boundaries:
Obtaining export license if required; obtaining currency
permit; packing goods for export; transporting goods to place
of departure, preparing a land bill of lading; completing
necessary customs export papers; preparing customs or
consular invoices; arranging for ocean freight and preparation;
obtaining marine insurance and certificate of the policy =>
Who is responsible for performing these tasks depends on the
terms of the sale.
Incoterms (国贸术语解释通则)
International terms of a sale are known are known as
Incoterms (International Commercial Terms) and specify
which party to a transaction is responsible for covering
various costs. These and other costs lead to export price
escalation, the accumulation of costs occurring when products
are shipped from one country to another.
Ex-works (工厂交货): Seller places goods at the disposal of
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.
Delivery duty paid (完税后交货): 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.
Incoterms
Free carrier (货交承运人):
Free alongside ship (船边交货) named port of destination:
Seller places goods alongside the vessel or other mode of
transport and pays all charges up to that point;
Free on board (船上交货): Seller’s responsibility does not
end until goods have actually been placed aboard ship.
C-Terms / Main-carriage terms:
Cost, insurance, freight (成本，保险加运费付至指定目的港)
named port of destination： Risk of loss or damage of
goods is transferred to buyer once goods have passed the
ship’s rail；
Cost and freight (成本加运费付至指定目的港): Seller is not
responsible at any point outside of factory.
Environmental Influences on Pricing Decisions
Currency fluctuations (币值波动)
Inflationary environment (通胀环境)
Government controls, subsidies and regulations (政府
管制, 补贴和法制)
Competitive behavior (竞争行为)
Using sourcing as a strategic pricing tool (使用采购作
为一个具有战略性的定价工具)
U.S. Dollar verses Japanese Yen
Currency Fluctuations
Currency fluctuations complicate the task of setting prices:
A weakening of the home country currency swings exchange
rates in a favorable direction if the currency in the country of
business is strong;
An equally opposite effect can happen when the currency is
strong.
In responding to currency fluctuations, global marketers can
utilize other elements of the marketing mix besides price,
e.g., improving product quality, productivity, etc..
The use of the flexible cost-plus method to reduce prices in
response to unfavorable currency swings is an example of a
market holding strategy and is adopted by companies that
do not want to lose market share.
Currency Fluctuations
Inflationary Environment
Defined as a persistent upward change in
price levels:
Can be caused by an increase in the money supply;
Is often reflected in the prices of imported goods of a
country whose currency has been devalued.
An essential requirement for pricing during
inflation is the maintenance of profit margins.
Inflation requires price adjustments because rising
costs must be covered by increased selling prices;
maintaining margins protects a company from
inflation.
Government Controls, Subsidies
and Regulations
Governmental policies and regulations that affect
pricing decisions include:
Dumping legislation;
Resale price maintenance legislation (再售价格维持法);
Price ceilings;
General reviews of price levels (对价格水平的常规审查).
When selective controls are imposed, foreign
companies are more vulnerable to control than local
ones, especially if the outsiders lack the political
influence over government decision that local
managers have.
Competitive Behavior
If competitors do not adjust their prices in response
to rising costs, management will be severely
constrained in it’s ability to adjust prices
accordingly (如果竞争对手不因成本上升而调整
价格，管理人员也就难以为了维持经营利润而
调价).
Conversely, if competitors are manufacturing or
sourcing in a lower-cost country, it may be
necessary to cut prices to stay competitive.
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 regarded as “the world’s workshop”.
A rationalization of the distribution structure can
reduce markups required to achieve distribution:
distribution:
Rationalization includes selecting new intermediaries,
reassigning responsibilities, or establishing direct
marketing.
Three Policy Alternatives in Global Pricing
There are three alternative positions a company can
take on worldwide pricing:
Extension or Ethnocentric (延伸) pricing policy
Adaptation or polycentric (调整) pricing policy
Geocentric (全球中心) pricing policy
Extension or Ethnocentric Pricing Policy
Calls for the per-unit price of an item is the same no
matter where in the world the buyer is located, i.e.,
fixes a single price worldwide.
In such instances, importer must absorb freight and
import duties.
Advantage: Extremely simple because no information
on competitive or market conditions is required for
implementation.
Disadvantage: Fails to respond to the competitive and
market conditions of each national market.
Adaptation or Polycentric Pricing Policy
Permits subsidiary or affiliate managers or
independent distributors to establish whatever
price they feel is most desirable in their
circumstances, i.e., allows subsidiaries or local
distributors to make independent pricing
decisions.
There is no requirement that prices be coordinated
from one country to the next:
Companies utilizing independent distributors were the
most likely to utilize polycentric pricing, e.g., IKEA..
Is sensitive to local market conditions but creates
potentials for gray marketing.
Geocentric Pricing Policy
Represents an intermediate course of action (中间路线 ),
and is best suited to global competitive strategy.
Based on the realization that unique local market factors
(local costs, income levels, competition, local marketing
strategy) should be recognized in arriving at pricing
decisions.
Recognizes that price coordination from headquarters is
necessary in dealing with international accounts and product
arbitrage (认识到总部的价格协调在处理国际性项目和产品套利时
非常有必要).
Seeks to ensure that accumulated national pricing experience
is leveraged and applied wherever relevant (努力确保公司积累
的各国市场定价经验在所有相关地区得到利用和应用).
Additional Issues in Global Pricing
Export Price Escalation 出口价格升级
Gray Market Goods 灰色市场商品
Dumping 倾销
Pricing Fixing 价格垄断
Transfer Pricing 转移定价
Export Price Escalation 出口价格升级
Export price escalation refers to increase in the final
selling price of goods traded across borders (出口价格
升级是指跨国贸易的商品最终销售价格的提高), i.e., the
added costs incurred as a result of exporting products
from one country to another..
It relates to situations in which ultimate prices are
raised by shipping costs, insurance, packing, tariffs,
longer channels of distribution, larger middlemen
margins, special taxes, administrative costs and
exchange rate fluctuations (最终价格的提高与下列情形相
关：运输成本，保险，包装，关税，较长的分销渠道，较大的
中间商边际利润，特俗的税收，行政成本以及汇率波动).
Gray Market Goods
Gray market goods are trademarked products that are
exported from one country to another where they are
sold by unauthorized persons or organizations (灰色
市场商品由一国出口到另一国有有商标的产品，在进口
国由未经授权的个人或组织销售).
The issue of gray market goods arises because price
variations between different countries lead to parallel
imports, which occurs when companies employ a
polycentric, multinational pricing policy that calls for
setting different prices in different country markets (
当公司采用一种要求在不同国家制定不同价格的多中心
的，多国化的定价策略时，平行进口就产生了).
Gray Market Goods
Gray market can flourish when a product is in short
supply, when producers use skimming strategies in
certain markets, and when goods are subject to
substantial mark-ups.
Conditions of the Occurrence
of Parallel Importing
Firms charge different prices from country to country
(从国家到国家, 公司收取不同的费用).
In another scenario, a company manufactures a
product in both the home country market and foreign
markets. Products manufactured abroad are sold to
gray marketers, who bring the products into homecountry market to compete with domestically
produced goods (在另一个场景中，一个公司在本国市
场和国外市场生产一种产品。在国外生产的产品远销灰色
市场营销人员，他把产品带到母国市场和国内生产的商品
竞争).
Examples
Consequences of Parallel Importing
in Global Markets 平行进口的后果
Dilution of exclusivity (专营权的稀释): Authorized dealers
are no longer the sole distributors.
Free riding (投机取巧): If the manufacturer ignores complaints
from authorized channel members, those members may engage in
free riding. That is, they may take actions to offset downward
pressure on margins.
Damage to channel relationships (损坏渠道关系)
Undermining segmented pricing schemes (破坏细分价格的
计划)
Reputation and legal liability: Although gray market goods
carry the same trademarks as goods sold through authorized
channels, they may differ in quality, ingredients or some other way.
Effects of Parallel Importing
How to Resolve Problems Associated
with Parallel Importing?
Repeals Section 526 of the Tariff Act of 1930 and requires
gray market goods to bear labels explaining differences
between them and goods from authorized channels (撤销
1930年关税法案的第526章，并要求灰色市场商品贴上说明他们与
通过授权渠道销售的商品之间区别的标签).
Implement market segmentation and product differentiation
to make gray market products less attractive (实行市场细化
和产品差异化，使灰色市场产品不那么有吸引力).
Identify and terminate distributors that are involved in
selling to gray markets (识别参与销售给灰色营销者的分销商并
终止与他们的关系).
Dumping 倾销
GATT: Sale of an imported product at a price
lower than that normally charged in a domestic
market or country of origin (低于国内或原产地国家的
正常价格销售进口产品).
Occurs when imports sold in the U.S. 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 (当在美国市场上销售的进口商品定价低于生产
成本加上8%的编辑理论或低于生产国普遍的价格水平时，
就存在倾销).
To prove that dumping has occurred, both price
discrimination and injury must be demonstrated.
Approaches to Avoiding
the Dumping Laws
Differentiate the product sold from that in the
home market, so that it does not represent “like
quality” (将产品与国内市场销售的产品区分开来，这样二
者就不具有相似的质量).
Make non-price competitive adjustments in
arrangements with affiliates and distributors (与分
支机构或分销商达成非价格竞争的协议).
Price Fixing / Price Monopoly (价格垄断)
Representatives of two or more companies secretly set
similar prices for their products (两个或更多公司的代表为
他们的产品指定相似的价格):
Illegal act because it is anticompetitive.
Horizontal price fixing occurs when competitor within
an industry that make and market the same product
conspire to keep prices high (横向价格垄断发生在制造或营
销相同产品的竞争对手合谋保持高价的时候).
Vertical price fixing occurs when a manufacturer
conspires with wholesalers/retailers to ensure certain
retail prices are maintained (纵向价格垄断发生在制造商与
批发商/零售商合谋来保证维持一定的零售价格的时候).
Transfer Pricing 转移定价
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 (是指为了实现其在全球范围内经营利益最
大化，跨国公司根据国际营销目标在母公司和子公司之
间,及各分支公司之间转移商品或劳务时使用的一种内部
交易价格）.
Purpose: 通过适当的价格变化，达到规避税收与风险的
目的，从而增加整个公司的利润。
Countertrade as a Pricing Tool
(作为定价工具的反向贸易)
Countertrade occurs when payment is made in
some form other than money
Options
Barter trading 易货贸易
Counterpurchase or parallel trading 反向购买
Offset trading 抵消贸易
Compensation trading or buyback 补偿贸易
Switch trading 转手贸易
Barter
The least complex and oldest form of bilateral, nonmonetary counter-trade.
A direct exchange of goods or services between two
parties.
Counterpurchase
In most counterpurchase transactions, two contracts
are sighed; the supplier sells products for cash and
purchases unrelated products.
Offset Trading
Offset is a reciprocal arrangement whereby the
government in the importing country seeks to
recover large sums of hard currency spend on
expensive purchases such as military aircraft or
telecommunications systems.
Offset differs from counterpurchase, which is
characterized by smaller deals in a short time frame.
Offset is not a contract but a memorandum of
understanding with the value to be offset and a time
frame.
Compensation trading
It is also called buyback, and it involves two
separate and parallel contracts.
Compensation differs from counterpurchase
because the technology or capital is related to the
output produced.
Switching Trading
Switch trading can be applied to barter or other
countertrade arrangement when one parties does not
accept all the goods in a transaction.
Switch traders charge fees from 5% of market value
for commodities to 30% for high-technology items.
New Product Pricing
Skimming price: Firms charge a high, premium price
for its new product with the high intention of
reducing it in future response to market pressures
Penetration pricing: New product is introduced at a
very low price
Trial pricing: Product carries a low price for a
limited time period.
Cost-plus Pricing 成本加成定价法
If RMB is appreciating, what is the
right choice for China’s exporters?
Stress price benefits or engage in non-price
competition (强调价格实惠还是进行非价格竞争)?
Engage in cost reduction or adding more costly
product features?
Use full-cost pricing or marginal-cost pricing?
Speed or slow down the repatriation ( 汇 回 ) of
foreign-earned income and collections (收汇)?
Minimize or maximize expenditures in host-country
currency?
Buy needed services in domestic market or not?
Bill foreign customers in RMB or their own currency?
Companion Products Pricing补充品定价法
Companion products are the ones whose sale is
dependent on the sale of primary product (补充品的销
售依赖于主产品的销售)
The sale of video games is dependent on the sale of the
game Console (视频游戏依赖于销售游戏控制台).
“If you make money on the blades, you can give away the
razors.” (“如果你刀片赚钱，你可以放弃剃须刀”)
Pricing products that must be used with the main product
(e.g., replacement cartridges for Gillette razors).
Producers often price their main products low and set high
markups on the supplies.
The fixed amount should be low enough to induce usage f the
service; profit can be made on the variable fees.