DISCUSSION QUESTIONS
11-1. What are the basic factors that affect price in any market? What considerations enter into
the pricing decision?
One factor is the price floor, which can be linked to product cost or some other
consideration. For example, in the fall of 1996, Florida tomato growers concerned about
A second basic factor is the price ceiling, an upper limit created when comparable
products are available. As industries globalize, consumers should enjoy lower prices
Finally, between these two extremes there is an optimum price. Many Japanese
11-2. Define the various types of pricing strategies and objectives available to global marketers.
The three strategies discussed in the chapter are market skimming, penetration pricing,
and market holding or status quo pricing. Market skimming is appropriate in the
With a penetration pricing strategy, a relatively low price is established in an effort to
Status quo pricing is particularly important in global marketing because currency
11-3. Identify some of the environmental constraints on global pricing decisions.
Currency fluctuations are an important consideration in global marketing. Inflation is
another factor in the economic environment that may force a company to make frequent
11-4. Why do price differences in world markets often lead to gray marketing?
Price differentials mean opportunity to engage in arbitrage. “Buy low, sell high” is the
operative phase, and many entrepreneurs are quick to capitalize on the chance to make
11-5. What is a transfer price? Why is it an important issue for companies with foreign affiliates?
Why did transfer pricing in Europe take on increased importance in 1999?
A transfer price if the price one unit of a company charges to another company unit for
goods and services. Transfer prices can be determined on the basis of the market, or by
11-6. What is the difference between ethnocentric, polycentric, and global pricing strategies?
Which one would you recommend to a company that has global market aspirations?
An ethnocentric pricing policy calls for the price of a particular product to be the same in
A polycentric approach relies on adaptation of country managers who attempt to be as
responsive as possible to local market conditions. One problem with the polycentric
11-7. If you were responsible for marketing computerized tomography (CT) scanners worldwide
(average price, $1,200,000) and your country of manufacture was experiencing a strong and
appreciating currency against almost all other currencies, what options are available to you to
maintain your competitive advantage in world markets?
The real issue here is not just options for adjusting prices, but options that will allow the
marketer to maintain competitive advantage. One option is to shift manufacture to one or
11-8. Compare and contrast the different forms of countertrade.
Companies barter when buyers are unable to pay in cash, or when a country’s currency is
not freely convertible in foreign exchange markets. Barter is a category of countertrade in
CASES
Case 11-1: Global Automakers Target Low-Income Consumers (B)
Overview: The Logan is a case study in driving down costs. Established automakers in
developing countries are racing to develop low-cost vehicles for the entry-level buyers. The
question is: Can the auto companies come up with the optimal value proposition?
11-9. What is the key to the Logan’s low price?
Logans are manufactured in seven countries so supply is close to demand; the company is
driving down costs everywhere: Windshields are nearly flat, outside mirrors are identical,
11-10. Do you think Tata will be able to save the Nano? What steps should the company take?
Since Tata’s target market is consumers in those emerging markets that currently travel by
scooter, the Nano should be a success. It is in the emerging markets of India, China,
11-11. Assess Carlos Ghosn’s plan to revive the Datsun nameplate. Can a car that sells for $
3,000 make a profit for the parent company?
Ghosn’s plan is based on his beliefs and his past. Thorough study of the consumer in his
11-12. Low-cost cars such as the Nano and Datsun lack the multilayered safety and quality
features required by regulators in high-income markets. Is it appropriate to create “bare-bones”
cars with fewer safety features for emerging markets?
Case 11-2: Global Consumer-Products Companies Target Low-Income Consumers
Overview: In “Frugal engineering.” “Indovation.” “Reverse innovation.” These are some of the
terms that marketers at GE, Procter & Gamble, Siemens, and Unilever are using to describe
efforts to penetrate more deeply into emerging markets. As growth in mature markets slows,
executives and managers at many global companies are realizing that the ability to serve the
needs of the world’s poorest consumer will be a critical source of competitive advantage in the
decades to come.
Two-thirds of the world’s population, more than 4 billion people, live on less than $2 per day.
This segment is sometimes referred to as the “bottom of the pyramid” and includes an estimated
1.5 million people who live “off the grid”.
Not every company has been successful targeting the low-income segment.
11-13. Why are companies such as Siemens, GE, Nestle, and Procter and Gamble targeting the
“bottom of the pyramid”?
Several answers are available for this question and the students’ answers will vary,
depending on the industry they discuss. For example, it is estimated that 1.5 billion
11-14. Review the Chapter 4 discussion of diffusion theory. How might an understanding of the
characteristics of innovations help marketers succeed in emerging markets?
Characteristics of Innovations:
Five factors affect the rate of adoption:
Relative advantage: How a new product compares with existing products or methods.
By analyzing the above five factors that affect the rate of adoption of new products, all five
11-15. What types of marketing communications may be necessary to launch an innovative
product such as Procter & Gamble’s PUR in emerging markets? What changes in consumer
attitudes and behavior are required for successfully launching a product such as PUR?
In emerging markets, word-of-mouth/social media will most likely work the best for a
product like P&G’s PUR. Consumers need to be open to a new way of doing things
11-16. What key concepts discussed in Chapter 1 apply to Nestle’s experience in Latin America?
markets.
Case 11-3: LVMH and Luxury Goods Marketing
Overview: One fashion house that is changing with the times is LVMH Moët Hennessy Louis
Vuitton SA, the largest marketer of luxury products and brands in the world. Chairman Bernard
Arnault presides over a diverse empire of products and brands, sales of which totaled nearly $40
billion in 2013. Arnault, whom some refer to as “the pope of high fashion,” summed up the
luxury business: “We are here to sell dreams. When you see a couture show on TV around the
world, you dream. When you enter a Dior boutique and buy your lipstick, you buy something
affordable, but it has the dream in it.” The company’s specialty group includes Duty Free
Shoppers (DFS) and Sephora. DFS operates stores in international airports around the world;
Sephora, which LVMH acquired in 1997, is Europe’s second-largest chain of perfume and
cosmetics stores.
11-17. What were the possible risks of Louis Vuitton’s first-ever television advertising
campaign?
Executives raised wholesale prices in an effort to prevent discount retailers from
purchasing designer products for resale in mass-market outlets. They also raised prices in
11-18. In fall 2011, the euro/dollar exchange rate was €1 = $1.35. By spring 2015, the dollar had
strengthened to €1 = $1.10. Assume that a European luxury goods marketer cuts the price of an
$8,000 tweed suit by 10 percent when launching its spring 2015 collection. How will revenues
be affected when dollar prices are converted to euros?
An $8,000 suit in euros is equal to 8,800 euros at the $1.1 / 1 rate. With a 10% price cut,
11-19. Louis Vuitton executives raised prices in the late 2000s, and sales continued to increase.
What does this say about the demand curve of the typical Louis Vuitton customer?
In most cases, luxury products are characterized by superior craftsmanship. Luxury goods
prices are based on perceived exclusivity and differentiation of the brands. Certainly, the
11-20. Compare and contrast LVMH’s pricing strategy with that of Coach (Chapter 6).
Coach’s brand positioning can be described as “accessible luxury”, while LV describes
itself as “selling dreams”. LV markets are small, niche brands catering to the very rich.