11/12

• Pricing


  One of the major variables usually taken into consideration when evaluating the convenience of an operation
• Pricing strategy


  • Influences performances
  • Influences positioning among the market
  • Influences competitiveness
• Pricing when going international


  • Requires knowledge about costs
  • Requires ability to control distribution channels
  • Requires consideration of competitive landscapes
  • Requires consideration of cultural issues
• Dumping


  Consists in a company exporting a product at a price that is lower in the foreign importing market rather than the price in the exporters domestic market
• It depends on each country laws and regulation whether dumping is legal. It is necessary to always check on the possibility that this practice occurs
• Factors to be taken into consideration when setting up pricing strategies


  • Internal factors
  • Market factors
  • Environmental factors
• Internal factors


  • Production costs
  • Delivery costs
  • Financial expense
  • Foreign operation costs
• Full cost approach


  Pricing is calculated on the basis of direct costs per unit of output plus a markup, to cover overhead costs and profits
• Full cost approach


  • Fixed costs incurred in the domestic market are considered in the price fixed in the foreign markets
  • Good to apply when the company is leader of the market, not looking for a penetration strategy, and is ethnocentric
• Incremental cost approach


  Pricing only considers the additional expenses incurred to serve foreign markets, while ignoring costs related to the domestic market
• Incremental cost approach


  • Good to apply when there is an unused capacity of production, the company is looking for a penetration strategy, and is polycentric
• Penetration strategy


  Focused on aggressively increasing market share by selling more products or services at lower prices, often resulting in higher profits due to economies of scale
• Ethnocentrism


  The subsidiary must comply with policies decided at headquarter level
• Polycentrism


  Policies are set by single subsidiary in different market, better adapting to the culture
• Competitor analysis


  • Positive price difference: Advantage is higher perceived value, disadvantage is price not usable as leverage
  • Negative price difference: Advantage is stimulating local communities, disadvantage is lower perceived value
• Skimming strategy


  Charging a high price to maximise profit in the early stages of a product's introduction
• Penetration strategy


  Charging lower prices to gain market share in a new market
• Demand


  Captures the consumer's desire to buy the product or service, calculated as the price the consumers are willing to pay
• Demand elasticity


  Elastic demand (ε<1), Inelastic demand (ε>1), Unitary elasticity (ε=1)
• Factors influencing demand elasticity


  • People's income variation
  • Inflation
  • Other goods price variation
  • Consumers' expectations
  • Informative asymmetries
• Price escalation


  Increase in price when products move from one country to another
• Factors contributing to price escalation


  • Middleman costs
  • Transportation costs
  • Taxes, tariffs and administrative costs
  • Exchange-rate fluctuations
• Price escalation is a threat that may reduce demand of goods, depending on demand's elasticity and substitute goods prices
• Ways to limit price escalation


  • Lower the costs of production
  • Reposition the offer
  • Lower the number of intermediaries
  • Lower costs related to exportation
• Parallel imports


  Products are imported into a country without the consent of the brand owner, representing a threat to pricing strategies as they will make companies' loose control over pricing policies
• The main cause of parallel imports is the different pricing strategy applied to each country
• Ways to prevent parallel imports


  • Effective communication about the warranty
  • Adaptation of the products
  • Price-coordination among countries