Chapter 11: Pricing Decisions
Learning Objectives
• Discuss basic pricing concepts
• Identify the environmental factors influencing price
• Compare and contrast objectives and methods of global pricing strategies
• Discuss the issues associate with gray marketing
• Explain the causes and effects of dumping
• Discuss transfer pricing issues and alternatives
• Distinguish between three global pricing strategies
Chapter Overview
Pricing decisions are a critical element of the marketing mix that must reflect costs and
competitive factors. There is no absolute maximum price, but for any customer, price
must correspond to the customer’s perceived value of the product. The aim of most
marketing strategies is to set a price that corresponds to customers’ perceptions of value
in the product and at the same time does not “leave money on the table” (i.e., set a price
that is lower than consumers are willing to pay for a product or service). Generally, a
company must charge what a product is worth to the customer, cover all costs, and
provide a margin for profit in the process. Pricing strategies include market skimming,
market penetration, and market holding. Pricing decisions must also take into account the
price escalation that occurs when products are shipped from one country to another.
Dumping – selling products in international markets at prices below those in the home
country or below the cost of production – and parallel importing are two particularly
contentious pricing issues.
Lecture Outline
I. Basic Pricing Concepts (p. 295)
a. Cost
b. The Experience Curve
c. Competition
d. Demand
II. Environmental Influences on Pricing Decisions (p. 298)
a. Currency Fluctuations
b. Exchange Rate Clauses
c. Pricing in an Inflationary Environment
d. Government Controls and Subsidies
e. Competitive Behavior
f. Price and Quality Relationships
III. Global Pricing Objectives and Strategies (p. 301)
a. Market Skimming
b. Penetration Pricing
c. Market Holding
d. Cost Plus/Price Escalation
e. Using Sourcing As a Strategic Pricing Tool
IV. Gray Market Goods (p.305)
V. Dumping (p. 306)
VI. Transfer Pricing (p. 308)
a. Cost-Based Transfer Pricing
b. Market-Based Transfer Price
c. Negotiated Transfer Prices
d. Tax Regulations and Transfer Prices
i. Sales of Tangible and Intangible Property
ii. Competitive Pricing
iii. Importance of Section 482 Regulations
e. Duty and Tariff Constraints
f. Joint Ventures
VII. Global Pricing – Three Policy Alternatives (p. 313)
a. Extension/Ethnocentric
b. Adaptation/Polycentric
c. Invention/Geocentric
d. Actual Pricing Practices
VIII. Summary (p. 316)
Tables and Figures
Table 11-1 Global Marketing Pricing Checklist (p. 295)
Figure 11-1 Experience Curve (p. 296)
Table 11-2 Global Pricing Strategies (p. 299)
Table 11-3 Exchange-Rate Clauses (p. 299)
Table 11-4 Price Escalation (p. 303)
Table 11-5 Transfer Pricing Methods for Selected Countries (p. 310)
Sidebars
Sidebar 11-1 Open to Discussion: Contrarian Views of James Bovard (p. 307)
Sidebar 11-2 Pricing Reeboks in India (p. 313)