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BUS 464 Chapter 11 Notes
Pricing decisions
27
Marketing
Undergraduate 4
05/05/2012

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Term

Germany

  1. Main meal?
  2. National Drinks? (4)
  3. If you extend, you ______.
  4. Some ettiquette steps for dining (3)
  5. What is not allowed in a business dinner?
Definition
  1. Lunch
  2. Beer, applewine, schnapps, wines
  3. pay
  4. - everyone should have drink/cheers/
    - descritely ask for check - (check on this)
    - if invited out - - attend! 
  5. - women do not pay
    - do not be loud
    - do not collect plates (seen as an english maid)
    - no spouse allowed
Term

Japan

 

Dining-in Ettiquete 

  1. Dinner Service Tips
  2. Office dining tips
  3. General ettiquete tips
Definition
  1. - Senior person first to be seated 
    - senior person seated center away from facing door
    - junior person by door
  2. serve refreshments and use glassware
  3. - - eat some of everything
    - chopsticks across bowl
    - lifting soup and rice bowls - slurping - turn chopsticks around when taking from serving bowl 
Term

Japan Continued

 

Dining-out Ettiquete 

  1. At restaurant 
  2. In home cutoms/ettiqute 
  3. Drinking ettiquete
  4. What are some common drinks
  5. When is it appropriate to begin drinking
Definition
  1. - get their cuisine preference prior to ordering
    - be very discrete about making prior payment arrangements
    - your senior pours for other comp. senior person 
  2.  - - (look into)
  3. -keeping glasses full until they've had enough
    -if do not want alcohol: make religious or medical excuse
    - "what happens in Vegas, stays in Vegas"
  4. Green Tea and Sake
  5. After a toast has been made  
Term
  1. In relation to setting prices, the global manager must develop systems and policies that address what '3' things?
     
  2. Low prices in exports markets can invite what?

  3. International Trade results in: __________? 
Definition
  1. Price floor, price ceiling, optimum prices
     
  2. Dumping investigations

  3. Lower prices for Goods - which in turn, keep Country's Inflation in-check 
Term
 
  1. Define: Price Floor
    • What establishes this?
  2. Define: Price Ceiling
    • For what kind of products?
  3. Define: Optimum Prices
Definition
  1. Minimum price (cost based)
    • product cost - few firms can afford to do this over long run 
  2. maximum price (competition)
    • comparable substitute products
  3. function of demand
Term
  1. What 3 objectives must managers determine for pricing objectives?
     
  2. What 2 strategies must managers develop to achieve their pricing objectives?
Definition
  1. - Unit Sales
    - Market Share
    - Return on Investment
     
  2. -Penetration Pricing
    - Market Skimming 
Term
  1. Define: Market Skimming
    • When is this most likely to occur in a product life cycle?
    • What kind of companies use this? (2)
    • What is Demand Limited too?
       
  2. Define: Penetration Pricing
    • What non-financial objectives may lead to this pricing decision?
    • When did this begin?
Definition
  1. Charging at a premium price
    • Introduction Stage - where both production capacity and competition are limited -  
    • - those that pursue Differentiation Strategies 
      - those who position product in Premium Segment Frequently 
    • innovators and early adopters who are willing to pay high price

  2. Charging a low price in order to penetrate the market quickly - can be used as competitive weapon or to maintain Market Position 
    • to saturate market prior to imitation by competitors  
    • historically on the Pacific Rim with Scale efficient and low-cost plants
Term
  1. Define: Companion Products (popular with cell services)
    • What is best example of companion products?
       
  2. Define: Target-Costing Process
     
  3. What are the four steps of the Target-Costing Process?
    • What is the cardinal rule
    • What it is this also known as/called?
Definition
  1. Products whose sale is dependent upon primary product
    • "Razors and Blades" - 'If you make money on the blades, you can give away the razors.'

  2. Ensures development team brings profitable products to market with
    - Right Level of Quality AND fuctionality
    - With Appropriate prices for target cust. segmetns
    - in sense, company functions backwards
    - used for inexpensive consumer nondurables 
    - P&G called it "reverse engineering"
     
  3. 1) Determine segment(s) to be targetedand prices cust willing to pay
    2) Compute overall target costs
    3) allocate target costs to product's various functions|
    4)Obey Cardinal RULE! 
     
    • If the design team can't meet the target, the product should NOT be launched
       
    • Design To Cost
Term
  1. Define: Cost Based Pricing
    • What cost method should be used if firms use Western Cost Accounting Principles?
       
  2. Define: Per-unit Product Costs 
Definition
  1. based on an analysis of internal and external costs
    • Full Absorbtion Cost Method

  2. sum of all past OR current direct AND indirect manufacturing and overhead costs 
Term

 

 

What are the 8 Foundational Pricing Considerations? (Q's?)

Definition
  1. does Price reflect Quantity? 
  2. is Price Competitive in Local Market?
  3. should we Consider other Pricing Objectives?
  4. Discounts for International Customer(s)?
  5. should Price Differ with Market Segmentation?
  6. is Intl. Demand elastic OR inelastic?
  7. will price be considered Fair by Host Country?
  8. foreign country Dumping Laws pose Threat?
Term
  1. Define: Cost Plus Pricing
     
    • Define: Rigid Cost-plus Pricing
      • What is it based on?
         
    • Define: Flexible Cost-plus Pricing 
Definition
  1. Easiest approach when NO Demand OR Competition considered 

    •  companies set prices without regard to the '8' Foundational Pricing Considerations 
      • based on Home Country
         
    • ensures Prices ARE Competitive in the contest of Particular market Environment
Term
What are the '9' Terms of the Sale for Goods crossing the border?
Definition
  1. Obtain export license (if required)
  2. Obtain currency permit
  3. Pack goods for export
  4. Transport goods to place of departure 
  5. Prepare a Land Bill of Lading 
  6. Complete Customs Export Papers 
  7. Prepare Customs OR Consular invoices
  8. Arrange for Ocean Frieght AND Preparation
  9. Obtain Marine Insurance AND Certificate of the Policy
Term
  1. What does Incoterms stand for?
     
  2. What are the '6' Incoterms of a sale?
Definition
  1. International Commerical Terms

  2. 1) Ex-works - Origin (buyer bears all risk) - "E-Term" - max control for buyer - 
    2) Delivery Duty Paid - Destination (seller bears all risk)
    3) FAS - Free Alongside Ship (seller bears risk until products arrive @ port)
    4) FOB - Free On Board (seller bears risk until products on ship) 
    5) CIF - Cost, Insurance, Freight (seller bears risk until ship leaves port)
    6) CFR - Cost and Frieght (seller not responsible at all after product leaves factory)
Term
  1. Define the '6' Following Incoterms:
     
    1. Ex-Works
    2. Delivery Duty Paid
    3. FAS
    4. FOB
    5. CIF
    6. CFR 
Definition
  1. Seller places goods at disposal of buyer at Specified Time in Contract - buyer assumes responsibility after Taking delivery from Sellers Premisis (Origin)
     
  2. Seller has all risk until delivery has Arrived at Desitnation location/Port (Destination) - includes Duties, paid. 

  3. Free Alongside Ship - seller holds all risk until delivery arrives and Unloads at Port of Departure. 

  4. Free On Board - seller holds all risk until until delivery is placed On Ship. 
     
  5. Cost, Insurance, Freight - named Port of Destination - risk transferred to buyer once delivery has exited ship (similar to FOB) 

  6. Cost and Frieght - seller holds Zero Risk at all times
Term
List the '5' Environmental Influences on Pricing Decisions
Definition
  1. Currency Fluctuations 
      - in weak currency country can cut export prices to increase mkt share OR maintain prices
      - in stronger currency country unfavorable because when costs convert it is not as favorable 
  2. Inflationary Environment
     - Essential Req: maintence of operating margins (increase price due to increased costs)
     
  3. Gov't  - Controls 
                  - Cash Deposit Req: create incentive for company to minimize Stated Value of imported goods (lower price means smaller deposits)
                  - Profit transfer rules: restrict conditios profits can be transferred out of country 
              - Subsidies
              - Regulations 
                  - include dumping legislation, resale price mainten. legisl, price ceilings, and reviews of price levels
     
  4. Competitive Behavior
     
  5. Sourcing 
        -strategic pricing tool that addresses problems with price escalation and environmental factors by:
          1) keep costs and prices competitive - switch to outsourcing OR audit supply chain
       
Term
  1. Name the '3' Policy Alternatives to Global Pricing
Definition
  1. - extension OR ethnocentric
      
    - adaption OR polycentric
    - Geocentric

  2.  
Term
  1. Define: Extension
    • Who absorbs Frieght AND Import Duties?
    • What is the problem with Extension?

  2. Define: Adaption
    • Who does this permit?
    • How does it react to Market Conditions?
    • What does it Create Potential For?
Definition
  1. Per-unit Price of item always Same no matter where in world Buyer is Located - Ethnocentric
    • Importer
    • Fails to Respond to Each National Market
       
  2. Establish Price as felt Most Desirable in Cirumstances - Polycentric
    • established by Affiliate Managers OR Independent Distributors
    • Sensitively to local markets
    • Gray Marketing
Term
  1. Define: Geocentric
    • What '4' Factors are relevant to Geocentric Pricing Decisions?
       
  2.  Define: Grey Market Goods
    • When does this occur? (3 instances) 
Definition
  1. Intermediate Cource of Action
    • 1) Local Costs
      2) Income Levels
      3) Competition
      4) Local Marketing Strategy 
       
  2. Trademarked Products Exported from one country to another and Sold by Unauthorized Persons or Organizations
    • - When product is in Short Supply
      - Producers using Skimming Strategies
      - Parallel Importing (goods are subject to substantial markups) 
Term
  1. Define: Parallel Importing
     
  2.  What are '5' Grey Market Issues?
Definition
  1. Goods subject to substantial markups due to companies employing a Polycentric pricing policy that has different prices of things in different markets
     
  2. 1) Dilution of Exclusivity 
    2) Free Riding
    3) Damage to Channel Relationships
    4) Undermining Segmented Pricing Schemes
    5) Reputation AND Legal Liability  

 

Term
  1. Define: Dumping
     
  2. When does Dumping occur? (2 instances)
     
  3. How to prove Dumping is occuring?
Definition
  1. Sale of Imported Product at Lower Price than Normal in Domestic Market OR Country of Origin
     
  2. Imports sold in US are priced at either:
    • Levels that represent Less than the Cost of Production Plus an 8% Profit Margin 
    • Levels below those Prevailing in Producing Countries
       
  3. Both Price Discrimination (setting deff. prices when selling same Quantity of likequality goods to diff. buyers) and Injury must be Shown
Term
  1. Define: Price Fixing
    • Why is it Illegal?
       
  2. Define: Horizontal Price Fixing
     
  3. Define: Vertical Price Fixing 
Definition
  1. Representatives from Two OR More companies Secretly Set Similar Prices for their products
    • It is Anticompetitive

  2. Competitors with Same Product and within Same Industry conspire to keep Prices High

  3. Manufacturer Conspires with Wholesalers/Retailers to ensure certain retail Prices are Maintatined  
Term
  1. Define: Transfer Pricing 
     
    • What are the '3' Intra-corporate Exchanges?

  2. Define: Countertrade

    • what are the '5' Countertrade Options/Choices?  
Definition
  1. Pricing of Goods/Services/intangibles Bought AND Sold by Operating Units/Divisons of a company doing business With an Affliate in Other Jurisdition - aka "intracorporate exchanges"
     
    • 1) Cost-based Transfer Pricing - internal cost is starting point in deter. cost
      2) Market-based Transfer Pricing - price required to be competitive
      3) Negotiated Transfer Pricing 

  2. when Payment is made in Some Form Other than Money
     
    • 1) Barter
      2) Counterpurchase OR Parallel Trading - both parties sell different products/services to each other for cash amounts of the same price (both end up breaking even)
      3) Offset - gov't makes countries import in order for us to purchase their exports 
      4) Compensation Trading OR Buyback - two separate parallel trading - fronting money and taking equity in company for X years etc..
      5) Switch Trading - 3rd party steps into barter when one party is not willing to accept all of the agreements
Term
  1. Define: Barter
     
    • How is it in relation to Bilateral, Non-Monetary Counter-trade
Definition
  1. Direct Exchange of goods/services between Two Parties

    • Least Complex AND Oldest Form of the trade 
Term
  1. Define: Law of One Price?
    • What products would Qualify? (4)
       
  2. National Competition reflects differences in which factors? (3)
Definition
  1. All customers could get best product available at best price 
    • crude oil
      commercial aircraft
      diamonds
      integrated circuts
       
  2. Costs
    Regulation
    Intensity of Rivalry amongst Industry Members 
Term
  1. Export Price Escalation
  2. Cost-based pricing is also known as?
  3. Define: Full absorption cost method
    • Define: Rigid cost pricing
    • flexable cost pricing
Definition
  1. increase in final selling price of goods traded across borders 
  2. cost-plus pricing
  3.  defines per-unit cost as sum of all past or current direct and indirect manufacturing (transporation, duties, and incuranse)
    • set prices without regard to the eight considerations - simplicity- but ignores demand and competitive conditions - risk is prices can be set too high or too low
    • will sometimes incorporate estimated future cost method to establish future cost for all components 
Term
  1. Four Categories of INCOTERMS - usually use incoterms for large orders
  2. Define: break bulk cargo
  3. Define: Market Holding Strategy
  4. I
Definition
  1. - E-Terms or "orgin" term
    - F-terms or Pre-main-carriage Terms
          - FCA (Free Carrier) - transfer from seller to buyer is affected when goods are deliverd to a specified carrier at a specified destination
          - FOB and FAS as well
    - C-Terms or "main-carriage" terms
          - CIF Named Port - CFR
          -
  2. non-containerized cargo - iron, steel, machinery
  3. use of flexible cost-plus method to Reduce Price in Response to unfavorable currency swings - adopted by companies that do NOT want to lose mkt share
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