Pricing, Pricing Senstivity and Distribution

Pricing Strategies for
Emerging Markets
Mubbsher Munawar Khan
Institute of International Marketing Management
Pricing
 Only area of global marketing mix where policy
can be changed rapidly without large direct
cost implications
 Decisions in global markets are affected by
complexity of influential factors
15-47
International
pricing framework
Environmental
Firm-level factors
factors
Product factors Market factors
Other
Pricing strategies
elements
Terms
Firm performance
15-48
Internal factors affecting
international
pricing
Firm-level factors decisions
Product factors
 Corporate and marketing  Stage in PLC
objectives  Place in product line
 Competitive strategy  Most important product
 Firm positioning features
 Product development  Product positioning
 Production location  Product cost structure
 Market entry modes
15-4
External factors affecting
international
pricing
Environmental factors decisions
Market factors
 Government influences  Customers’ perceptions
and constraints  Customers’ ability to
 Inflation pay
 Currency fluctuations  Nature of
 Business cycle stage competition
 Competitors’
objectives, strategies,
strengths and
weaknesses
 Grey market appeal
15-5
What is this?
What price-related phenomenon is

caused by the summation of all cost
factors in the distribution channel
including ex-works price, shipping
costs, tariffs, and distributor mark-
up?
Price escalation
15-51
15-52
Tactics for Countering
Price Escalation
 Rationalizing the distribution process
 Lowering the export price from the factory
 Establishing local production of the product
 Pressurizing channel members to accept lower
profit margins
15-8
Factors influencing
customer sensitivity to price
(1)
 More distinctive product
 Greater perceived quality of products
 Consumers less aware of substitutes in the
market
 Difficulty in making comparisons
 Proportion price represents of total expenditure
of the customer
15-9
Factors influencing
customer sensitivity to price
(2)
 Perceived benefit for customer increases
 Product is used in association with a product
bought previously, such that components and
replacements are highly priced
 Costs are shared with other parties
 Product or service cannot be stored
15-10
What is this?
What price strategy involves

charging a high price at the top end
of the market with the objective of
achieving the highest possible
contribution in a short time?
Skimming
15-56
Problems with
skimming
 Having a small market share makes the firm
vulnerable to aggressive local competition
 Maintenance of a high-quality product requires
a lot of resources
 If product is sold more cheaply at home or in
another country grey marketing is likely
15-57
What is this?

charging a final price based on
competitive prices?
Market pricing
15-13
What is this?

charging a low price with the
objective of achieving the highest
possible sales?
Penetration pricing
15-14
Motives for
penetration pricing
Intensive local competition
Lower income levels of locals
View of exporting as marginal activity
15-60
Communication Strategy in
Emerging Markets
Agenda
 Promotion Strategies for emerging markets

 Elements in the communication process
 Communication tools
 Major advertising decisions
 Standardization and adaptation
 Printed, outdoor and electronic advertisement
 Case study “RIN”
Variations within Countries
 The literacy rate indicates the number of people who can

read -- a critical ability for understanding most ads.
 Media are widely available in advanced economies. In
emerging markets and developing economies, however, TV,
radio, the Internet, and newspaper may be limited.
 The firm must use creative approaches to advertise in
countries with low literacy rates and limited media
infrastructure.
 Certain media selections make sense for some countries but
not for others. Mexico and Peru emphasize television
advertising, Kuwait and Norway concentrate on print media,
and Bolivia uses a lot of outdoor advertising on billboards
and buildings
Standardization vs. Adaptation
 Culture, Language  Media Conditions

 Literacy level, verbal/non-  Media Infrastructure
verbal language, etc.  Media Habits
 Symbols, colors, numbers,  Media Costs
etc.
 Overflow
 National Humour
 etc.
 Advertising Arrangement
 Local Advertising Style
 Restrictions (Object,
Arrangement)
Distribution Structures in
Emerging Markets (5)
Agenda for Today
• Presentation and Discussion on Research Article “ The

Changing Structure of Distribution in Pakistan”
• Distribution Structure in Emerging Markets
• Decision Making Regarding Channels
• Channel Sequences
• Strategy for Market Coverage
• Factors Influencing Channel Size
• Gray Marketing Causes, concerns and cure
Gray Marketing (Parallel Imports)
 Gray market activity: Legal importation of

genuine products into a country by intermediaries
other than authorized distributors.
 Consider a manufacturer that produces in the source
country and exports its products to another,
countries A and B in Exhibit 17.8.
 If the going price of the product happens to be
sufficiently lower in Country B, then gray market
brokers can exploit arbitrage opportunities – buy
the product at a low price in Country B, import it
into the original source country, and then sell it at a
high price there.
Causes of Gray Markets
 Root cause of gray market activity is a sufficiently

large difference in prices of the same product between
two countries.
 Such a price difference may be due to:
 (1) the manufacturer’s inability to coordinate prices
across its markets; or
 (2) a conscious effort on the part of the firm to charge
higher prices in some countries when competitive
conditions permit.
 Exchange rate fluctuations may also exacerbate gray
market activity by widening the price gap between
products priced in two different currencies.
Manufacturer Concerns
over Gray Markets
1. The risk of a tarnished brand image when customers

realize that the product is available at a lower price
through alternative channels – particularly less
prestigious outlets.
2. Manufacturer-distributor relations can be strained
because parallel imports result in lost sales to
authorized distributors.
3. Gray market activity can disrupt regional sales
forecasting, pricing strategies, merchandising plans,
and other marketing efforts.
Strategies to Cope with
Gray Markets
• Counter through aggressive price-cutting in countries and regions

targeted by gray market brokers.
• Exclusive import rights as incase of Gillette and Procter and gamble.
• Interfere with the flow of products into markets where gray market
brokers procure the product.
• Publicize the limitations of gray market channels. By publicizing

special sign or writing on the package.
• Design products with exclusive features that appeal to customers.

Adding safety, luxury, or functional features that are unique to each
market reduces the likelihood that products will be channeled
elsewhere.

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Pricing Strategies for

Product factors Market factors

What price-related phenomenon is

What price strategy involves

What price strategy involves

What price strategy involves

Intensive local competition

Lower income levels of locals

View of exporting as marginal activity

 Promotion Strategies for emerging markets

 The literacy rate indicates the number of people who can

 Culture, Language  Media Conditions

• Presentation and Discussion on Research Article “ The

 Gray market activity: Legal importation of

 Root cause of gray market activity is a sufficiently

1. The risk of a tarnished brand image when customers

• Counter through aggressive price-cutting in countries and regions

• Exclusive import rights as incase of Gillette and Procter and gamble.

• Publicize the limitations of gray market channels. By publicizing

• Design products with exclusive features that appeal to customers.

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