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Sweet Smell of Failure

Autor:   •  November 6, 2018  •  1,797 Words (8 Pages)  •  4 Views

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Companies that seek competitive advantage by pursuing differentiation strategies or positioning their products in the premium segment frequently use market skimming

The skimming pricing strategy is also appropriate in the introductory phase of the product life cycle, when both production capacity and competition are limited

Some companies are pursuing nonfinancial objectives with their pricing strategy. Price can be used as a competitive weapon to gain or maintain market position. Market share or other sales-based objectives are frequently set by companies that enjoy cost-leadership positions in their industry. A market penetration pricing strategy calls for setting price levels that are low enough to quickly build market share.

- Explain three policy alternatives of global pricing (what is the difference between ethnocentric, polycentric, and global pricing strategies?)

Extension or ethnocentric pricing calls for the per-unit price of an item to be the same no matter where in the world the buyer is located.

The extension approach has the advantage of extreme simplicity because it does not require information on competitive or market conditions for implementation. The disadvantage of the ethnocentric approach is that it does not respond to the competitive and market conditions of each national market and, therefore, does not maximize the company’s profits in each national market or globally.

adaptation or polycentric pricing, permits subsidiary or affiliate managers or independent distributors to establish whatever price they feel is most appropriate in their market environment. There is no requirement that prices be coordinated from one country to the next. IKEA takes a polycentric approach to pricing: While it is company policy to have the lowest price on comparable products in every market, managers in each country set their own prices. These depend, in part, on local factors such as competition, wages, taxes, and advertising rates.

Because the distributors or local managers are free to set prices as they see fit, they may ignore the opportunity to draw upon company experience. Arbitrage is also a potential problem with the polycentric approach; when disparities in prices between different country markets exceed the transportation and duty costs separating the markets, enterprising individuals can purchase goods in the lower-price country market and then transport them for sale in markets where higher prices prevail.

geocentric pricing, is more dynamic and proactive than the other two. A company using geocentric pricing neither fixes a single price worldwide, nor allows subsidiaries or local distributors to make independent pricing decisions. Instead, the geocentric approach represents an intermediate course of action. Geocentric pricing is based on the realization that unique local market factors should be recognized when arriving at pricing decisions. These factors include local costs, income levels, competition, and the local marketing strategy. Price must also be integrated with other elements of the marketing program. The geocentric approach recognizes that price coordination from headquarters is necessary in dealing with international accounts and product arbitrage. This approach also consciously and systematically seeks to ensure that accumulated national pricing experience is leveraged and applied wherever relevant.

Local costs plus a return on invested capital and personnel fix the price floor for the long term. In the short term, however, headquarters might decide to set a market penetration objective and price at less than the cost-plus return figure by using export sourcing to establish a market.

Another short-term objective might be to arrive at an estimate of the market potential at a price that would be profitable given local sourcing and a certain volume of production. Instead of immediately investing in local manufacture, a decision might be made to supply the target market initially from existing higher-cost external supply sources. If the market accepts the price and product, the company can then build a local manufacturing facility to further develop the identified market opportunity in a profitable way. If the market opportunity does not materialize, the company can experiment with the product at other prices because it is not committed to a fixed sales volume by existing local manufacturing facilities.

- Why do price differences in the world markets often lead to gray marketing? What is dumping, price fixing, and transfer price?

Gray market goods are trademarked products that are exported from one country to another and sold by unauthorized persons or organizations

This practice, known as parallel importing, occurs when companies employ a polycentric, multinational pricing policy that calls for setting different prices in different country markets. Gray markets can flourish when a product is in short supply, when producers employ skimming strategies in certain markets, or when the goods are subject to substantial markups.

Dumping is the sale of an imported product at a price lower than that normally charged in a domestic market or country of origin

Price fixing is when representatives of two or more companies secretly set similar prices for their products

Transfer pricing refers to the pricing of goods, services, and intangible property bought and sold by operating units or divisions of the same company

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