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Global Marketing

Lecture ten:
Global pricing decisions

Global pricing case study:

Factors influencing pricing strategy

Company and product factors
Market factors
Environmental factors

Special issues in global pricing

Lee and Carter, 2012

Specific export costs

Additional freight handling costs

Last minute product modifications
Packaging and labelling
Documentation requirements
Delays in custom clearance
Vaguely worded contracts or agreements

Special trade terms in exporting

Ex-works or ex-warehouse
The price is set from the
works or warehouse. Most
favourable to the seller

Free on rail or on truck

The buyer bears the cost of
rail or truck transport which is
included in the price

Free alongside ship (FAS)

The buyer nominates a ship
and the price includes
transport to that vessel only

Free on board: named port

of shipment (FOB)
enable the seller to provide
an additional service by
including in the price of
putting goods on a vessel

Cost, insurance, freight

Most common as very user
friendly for the buyer

Cost reduction strategies

Lee and Carter, 2012

Pricing decisions

Influencing the response to pricing

Consumer response
Competitor response

The IKEA experience

In developed markets

Positioned as a low-priced mass-market brand

In emerging markets

Low prices are the norm in emerging markets

Ikea targets a growing middle class that aspires to
international lifestyle products
Price is less of a selling point in these markets
DIY does not work well here so Ikea is developing services
for delivery, assembly and installation
Ikea prices are lower in China
Ikea aiming for market share and sales growth in early
years in China and India rather than profit

Pricing objectives
Rate of return
Market stabilisation
Demand-led pricing
To reflect product

Market skimming
Market penetration
Early cash recovery
Prevent new entry

Pricing approaches

Markup Pricing
Where a standard markup is added to the cost of the product or service
Full or marginal costing methods

Target-return Pricing
Basically a cost based approach
Price is determined by a target ROI

Competitive or Flexible Cost-Plus Pricing

Same as target-return but adjustment is made to account for local market conditions,
nature of the customer, size of order, and competitive conditions
Going-rate pricing
Competitive bid or tendering pricing

Market-based Pricing
Perceived value pricing based on markets view of pricing
Psychological pricing based on price and quality perceptions
Market penetration or dynamic incremental pricing aim to retrieve only the variable and
international marketing costs, regardless of fixed costs.

Price adaptation

Geographical pricing
Price discounts and allowances
Promotional pricing
Market/use pricing
Product mix pricing

Vaseline example of market pricing

13 ounces
List price in US: $2.99
Price per ounce of jelly: $0.23

0.35 ounce
List price in US: $1.99
Price per ounce of jelly: $5.69

The global price setting decision


Lee and Carter, 2012

Global Marketing
Lecture ten:
Global pricing decisions
Module leader: Giovanna Battiston