Pricing and Distribution

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Pricing and Distribution
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Session Outline

• Pricing strategy
• Factors affecting international pricing
• Pricing strategies
• Pricing policies
• Distribution strategy
• Channel decisions
• Standardisation/adaptation
• Case Loctite

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International Pricing Factors

• Environmental
• Regulations (import controls, taxes etc)
• Competition
• Demand
• Income levels, price sensitivity
• Inflation
• Organisational
• Company objectives
• Positioning
• Entry strategy
• Stage in the PLC
• Costs (production, transport and marketing)

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International Pricing Strategies

• Skimming
• High price is charged to skim the cream from
  the top end of the market
• Objective of achieving the highest possible
  contribution in a short time
• Product has to be unique
• Market must be willing to pay
• International Marketing Implications?

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International Pricing Strategies

• Penetration
• Used to stimulate market growth and capture
  market share by deliberately offering products at
  a low price
• Requires
• Mass markets
• Price-sensitive customers
• Reduction in unit costs through economies of
  scale
• International Marketing Implications?

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International Pricing Policies

• Polycentric/Regiocentric
• Firms leave a wide margin of discretion to local
  management
• i.e Philip Morris and the pricing of Marlboro
  cigarettes
• Issues
• Prices might vary considerably between countries
• Leave the firm open to parallel imports (grey
  trade)
• Miss out on potential synergies in a global
  context
• Advantage of being able to adjust prices to the
  particular conditions in each market

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International Pricing Policies

• Ethnocentric
• Provides a standard worldwide price, based on a
  full-cost formula to ensure that general
  overhead, selling expenses and RD costs are
  covered
• i.e. BerrySweet Australia
• Issues
• Most useful for standardised products with
  uniform usage patterns
• Natural policy when the company is small and
  international sales are limited
• Advantage of simplicity and allows head office to
  coordinate prices
• Not useful for firms facing different competitive
  situations in each market

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International Pricing Policies

• Geocentric
• The base price is computed from a cost-plus
  formula and the markup is adjusted for the
  particular situation the product faces in each
  market
• i.e. Pharmaceutical industry
• Issues
• Possibility of grey trade
• Allows subsidiaries to adapt to specific
  conditions in the market, including the threat of
  parallel imports from a neighbouring country
• Balanced compromise between global coordination
  and local adaptation

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International Channel Decisions

• Length
• How many levels is it necessary to have in a
  distribution channel in a foreign market?
• In general the more economically developed the
  country, the shorter the distribution channel
• However, other factors may intervene

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International Channel Decisions

• Width
• The number of each type of intermediary in the
  channel
• The larger the number of similar intermediaries,
  the greater the width of the channel and the
  higher the level of competition
• Wider channels make it easier to locate effective
  distributors
• Density
• The coverage desired for the product to achieve a
  profitable penetration of the foreign market
• e.g. the number of sales outlets necessary to
  cover the market

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International Channel Decisions

• Alignment
• The extent of coordination between members of the
  channel
• Aim is to achieve a uniform and integrated
  approach in getting the product to the final
  consumer
• Logistics
• The physical transfer of the product from the
  plant to the consumer in the overseas market
• Transportation
• Inventory management
• Order processing

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Standardisation/Adaptation

• Of the marketing mix variables that are usually
  discussed in connection with the standardisation
  versus adaptation debate, distribution receives
  the least attention.

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Case Loctite Hong Kong Distribution
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Summary Key Points

• Pricing
• Aggressive international pricing is difficult to
  sustain
• Difficult to standardise pricing internationally
• Important to consider more than just cost factors
• Demand, competition and infrastructure factors
• Distribution
• Need to adapt channel strategies to differences
  in distribution patterns
• Balance of power within the channel varies across
  countries
• Growth of international retailing facilitates
  some level of standardisation