International Marketing Diploma - Pricing

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SLIDE1
Hello and WELCOME back to module 7, where we will study international pricing

SLIDE2
To help us understand pricing issues in foreign markets, we will first do a case study on Mac Donalds. Then, we will study pricing determinants, followed by pricing strategies and price management.

SLIDE3

The ability of the consumer to AFFORD a product changes in various part of the world. As we can see, at the MINIMUM national wage in Australia, a customer would have to work just 18 minutes to earn enough to buy a BIG MAC. In Argentina, the customer would have to work more than 1 hour to buy the same BIG MAC, and in Afghanistan the customer would have to work 6 HOURS just to buy a BigMac.
It would therefore not make SENSE for MacDonalds to sell the product for the same price in each country

SLIDE4
In order to survive in some markets, MacDonalds have adapted their pricing strategy and introduced what we would call “Local Pricing”. Unfortunately for Mac Donalds, it cannot simply lower the price according to what people can afford. Instead – it has to take into consideration various factors to determine it’s pricing

SLIDE5
We will now discuss 7 determinants of pricing. These are factors that the company has to weigh up before deciding on a price:
Firstly we need to consider the ability of the market: How much CAN local people afford?
Secondly we would consider customer DEMAND. There might be different trends or consumer habits in the new market.
Thirdly, we would consider the company goals: Would the company like to make a quick profit? OR would the company like to establish itself and grab a big share of the market without making much short term profit, in order to be more profitable at a later point in time? The company could also have it’s own special goals it wishes to achieve with the product.
Fourthly, we need to consider COMPANY COSTS. Perhaps the company would consider adding a 50% margin regardless of it’s costs, which would be a “COST PLUS” method, Or perhaps it is best to apply INCREMENTAL pricing, where the company sells the product for cheaper once it has covered certain cost elements?
SLIDE6

The fifth determinant of pricing is DISTRIBUTION CHANNELS. For example, it would COST Mac Donalds a lot more to transport it’s products across the vast landscapes of Australia, than it would cost to do so on an Island Nation such as the UK. The issue of parallel imports can also affect pricing. If the government allows a competitor to import the same product more cheaply into the new country then the manufacturer will face difficulties in that country.
The sixth pricing determinant is GOVERNMENT policies: The Government in some countries can impose minimum or maximum prices: For example Carrefour supermarkets in Argentina was prohibited from increasing it’s prices. Or import taxes may be quite expensive, which is why a laptop in Rio de Janeiro is usually twice as expensive as in Miami.
The last factor to consider is COMPETITION: The local market may have little, or fierce competition, which will greatly affect the price we can charge.

SLIDE7
Now we will consider the various pricing strategies available for a new market:
Market skimming occurs when a company is early in a new market with little or no competition. During this period of time, the company charges a very high price as it “skims the market”;
Market penetration occurs when a company charges a low price in order to get a bigger SHARE of the market;
Product line pricing is where a company would provide CHEAP and EXPENSIVE products in the same category, for example Mac Donalds would sell a 99Cent burger as well as a BIG MAC for $5
Psychological pricing occurs when a company charges $1.99 instead of $2 because it believes that by doing so it will have a psychological impact on consumers
Promotional pricing occurs when the company would sell

   • International Marketing Diploma - Pricing