Global Pricing Strategies - Assignment Example

City, State

April 28, 2016

Question 1. Global pricing

Global pricing is a significant and intricate issue that all global firms have to deal with. The only instrument in the market that results in creation of revenue is price, all the rest of the elements necessitate cost. A contract specifying the price that a supplier is supposed to levy to all customers globally of services or parts conveyed is called a global pricing contract (Kotabe and Helsen, 1998). A company’s global pricing policy should be formulated carefully as it determines the success or failure of company’s attempts to go global.

Global pricing strategies

Different markets pose different challenges when setting the price. Nevertheless, consumers expect the price of the product to be equivalent to the value of the product. In the international market, price gives a company a tactical merit as it is one of the elements in the market that a company is able to control to some extent (Hinterhuber, 2008).

Global pricing strategies are influenced by:

• Objectives and goals of the corporate
• Features of the customers
• The strength of the competitors in the market
• The phase at which the life cycle of the product is in

The factors above affect the process of choosing a pricing strategy. The following discussion is a deeper analysis of different strategies arrived at after considering the above factors:

• Skimming strategies

Companies skim the market by selling their products at a premium price; this is normally employed by firms that require a high contribution in the shortest time possible (Terzi et al., 2012). Uniqueness of the product and the willingness of the consumers are significant for the success of this strategy. The ability of the firm to react to the reaction of the competitor is also crucial. Skimming strategy works best in the following circumstances:

• A market where consumers associate high price with high quality.
• Where the consumer ignorance is high.
• Where the product is associated with class.
• A market where there is no competition or monopoly is high.
• If the product is perceived as a breakthrough technologically.
• Penetration marketing strategy

A corporate employs this strategy with the intent of establishing its presence in an aggressive market. In order to penetrate an already existing market, a corporate sells its products at a price lower than the competitor. This strategy works best in a large market where consumers are price sensitive. In Japan, this strategy is rampant (Chaffey et al., 2009). Cases where this strategy works best include.

• A large developing market.
• A market where the loyalty of the consumers is low.
• A market featured with a high competition.
• A market where price and quality are not given much consideration.
• Differential Pricing Strategy

In this strategy, a firm uses different prices in different markets segments. The firm assumes that each market has its own driving force like the preferences of the consumers. A heterogeneous market is suitable for this strategy (Yelkur et al., 2001).

• Geographical pricing strategy

This strategy incorporates the price penetration strategy by offering low prices in one market, while penetrating another by taking advantage of scales of economy. According to Buckley and Ghauri (2004), if a firm adopts the geographic pricing strategy, it may sell its products at a premium price, use price penetration and discounted prices in three geographically different markets.

• Product line pricing strategies

This strategy favors a company producing different types of products. However, for this strategy to be effective, all the products must be related. The following strategies aid in achieving product line strategy:

• Price bundling is used to aid in creating an even demand among a firms products. Most suitable for perishable goods.
• Premium pricing most suitable to a firm that has a heterogamous line of products.
• Image pricing useful when customers deduce quality by comparing competing products. In this case, a corporate sets different prices for same line of products but separate brands.
• Complementary pricing applicable to firms whose products consumers’ transaction costs are high.
• Captive pricing strategy where consumers loyal to a firm are offered special prices. Examples are Gillete Company which offers a pair of blades once a consumer buys its blades and Kodak which on purchase of their cameras, they offer a free roll of film to the customer.
• Loss leader strategy involves a firm lowering prices of its product to create demand.
• Two part pricing is most suitable for products that are offered as one yet they are distinctly different. For instance, in video library membership, the services involved include payment for the membership and rental fee.

Product life cycle

Products undergo 5 stages before they reach the consumer. These include:

• Development
• Introduction
• Growth
• Maturity
• Decline

Question 2. Country of Origin

This is the country where a product is produced or manufactured. Consumers are always conscious of where the products they consume originate from (Maheswaran, 2013). According to Pisharodi and Parameswaran (2015), the origin of a product influences consumers’ behavior, especially if no other information about the product is provided. However, it doesn’t dominate the ability of customers to make decisions on whether to purchase the product or not. Country of origin also affects custom duty charged on the goods. It can also offer competitive advantage in the market over other goods.

Factors moderating country of origin on consumer’s perception

The image of the country from which a product comes from lowers or increases the perception of a consumer, as to whether the product is of worth buying, or not (Cronin and Bullard, 2015). Consumers portray a positive attitude on goods originating from countries which are developed as opposed to developing countries (Cronin and Bullard, 2015).

Cognitive aspects of country of origin effects

In relation to cognitive level, the country of origin prompts the quality of a product. Affective level country of origin dictates emotional and symbolic connotation of a product. A consumer may prefer one brand against another based on the fact that a brand of preference originates from a country whose ethics are in line with consumers beliefs and values (Verlegh and Steenkamp, 1999). Consumers perceptions on quality can be attributed to their sense of products superiority or excellence compared to other products. This plays a significant role in the mind of a consumer when evaluating the quality of a product.

The perception of the quality of a product is affected by two factors; manufacturing and design quality. Country of origin acts as a sign of reliability, safety and durability, which is perceived to reduce the consumers buying risk (Lobb et al., 2007). Products not well known in the market have an advantage as the country of origin may help them in dominating the market. However, for products that have a significant influence in the market, country of origin has got no major influence on their consumption (Profeta et al., 2012).

Affective aspects of country-of-origin effects

Affective effects on consumer’s behavior result from influence from experiences experienced directly. These include foreign encounter or travel and experiences experienced indirectly like mass media, art, word of mouth or education (Verlegh and Steenkamp, 1999). Consumers acquire some products in order to associate themselves with a certain class of people and a country of origin may act as an attribute to a certain class of people. According to Maher and Carter (2011), consumers have low preferences for products originating from countries they dislike. For example, Chinese consumers have very low preferences over Japanese products. This is because Japan is perceived to have played a major role in the economic problems faced in china a few years ago.

Normative aspects of country-of-origin effects

The ethnicity of a consumer affects his choice of products depending on their country of origin. Ethnocentrism may make a consumer like or hate products from a certain countries. According to Josiassen et al., 2011, p.627), ethnocentrism is “the view of things in which one’s own group is the centre of everything and all others are scaled and rated with reference to it”. Consumer’s perspective is based on strong liking of domestic goods and low preference of foreign products (Josiassen et al., 2011). However, disidentification refers to consumers dislike for local goods as a move to dis-identify with the local market. Before each firm establishes its market, it should consider the level of disidentification and ethnocentrism.

Factors affecting product evaluation, pricing, packaging, competition and communication according to country of origin.

• Consumers buying process.
• Consumers attitude towards locally produced goods.
• Consumers attitude towards foreign products.

Country of origin image

Despite variation in price, preference for French wine is high compared to Australian wine. Machines from Germany have garnered high preferences compared to Brazilian machines and the same case applies to cars from Japan as compared to American cars (Lin and Chen, 2006).

Question 3. Globalization

Globalization is the continued integration of different nations in the world. This results into interdependence among these nations. There are four forces that influence globalization namely; allowing independent flow of goods between countries by removing trade barriers; establishing an environment for free flow of capital among countries; permitting easy exchange of technological ideas and providing a conducive environment for the exchange of labour (Budhwar, 2002).

Advantages of globalization

• It promotes ease of access of information by turning the world into a “global village.”
• It removes barriers of culture.
• It promotes international relations.

Disadvantages of globalization

• It leads to environmental degradation.
• It leads to cultural degradation.
• It leads to decline of local industries.

Globalization has led to free flow of products from one country to another hence promoting trade and improving the relationship between the trading countries. Through global relations, countries have been able to resolve conflicts which would have otherwise resulted to war. However, globalization has contributed to degradation of cultural beliefs as people strive to match the current trends of life. The move to industrialization in order to supply the expanded market has resulted to release of harmful gases in the atmosphere hence causing environmental degradation (Gamble et al., 2003).

Conclusion

For any country to succeed in its attempts to go global, it must put into consideration factors such as globalization, the global pricing strategies to adopt and the influence its country of origin will have on consumers in the new market. These factors could lead to the success or failure of a firm.