Price as an International Market Issue - Coursework Example

Name Course Date Professor Price as an International Market Issue Global companies mainly perform international marketing, and Allsmile is one of the companies that needs international marketing for its products (Gillespie & Hennessey, 2011). The marketing mix is otherwise known as the four P's of international marketing namely, price, product, promotion, and place. The product range offered by the company is wide, and most of them are top selling in the markets penetrated. Place entails the location of the company's stores around the globe. Promotion involves advertising and finding locations for stores in new markets (Mooij, 2013). Finally, the main area of focus, which is price, is designed by the company to bring as much competition to its competitors around the world (Hoffmann, 2008). The company aims at formulating low prices and keep the promotion levels high, and that is the main reason our company provides a negative contribution. Products pricing in international markets is complex and requires careful planning and evaluation. Pricing of goods by international marketing managers is dependent on the costs, customers, and completion and these factors vary from one country to another (Richter, 2012). Pricing is aimed at providing more revenue through fewer costs through placing a range of prices that fall within what customers are willing to spend and ensuring that the prices fall in line with what the competitors are offering. Pricing is important for all international managers. Because the customers, costs, and competitors vary from country to country, Standardization of prices in Latin America compared to those in developing countries for the same product is dependent on various factors. In this case, we can assume that in a given country market that is very strategically critical for the company, there exists a high level of competition. To enter such markets, a company needs to offer prices that are lower than its competitors are offering and in the process receive lower profit margins. In another country, that we assume is a neighbor the prices will have to be set higher because the number of competitors is less and thus a lower level of competition. However, companies may sometimes wish that the differences in prices between stores in different countries were not extreme. This scenario arises because ill will might be created especially in the markets that are highly priced. Additionally, extreme differentials might force companies to focus resources and opportunities on the higher priced markets and sometimes even outsource resources from lower priced markets to the higher priced markets, a situation known as gray trade or parallel importing. A good example is an SKU (Stock Keeping Unit), which is lower priced in Brazil, can find a way to Argentina where the same SKU is highly priced because a retailer or wholesaler in Argentina can find out that it is cheaper to acquire the product from Brazil than from the manufacturer directly. Such issues are eliminated through standardization of prices especially those within neighboring states. Fluctuation of foreign currencies is another major aspect that determines the price of products in global markets (Hollensen, 2016). Many investors have the aim of holding dollars, and this leads to the rise in dollar value and therefore foreign units needed to buy the dollar rises. It is clear that the rise or fall in dollar value affects the importers and exporters or in general international marketing (Mathur, 2008). Unlike the domestic businesses where the domestic currency determines all the production costs and sales, global businesses entail a minimum of two currencies. For example, Allsmile products are manufactured in the United States and need to be exported to Latin countries like Brazil. The United States currency (USD) and Brazilian currency (REAL) will be involved in the transaction, and therefore the currencies will, in the end, be a determinant in the products’ price. In some other cases, the price to the target customers do not change, and the scenario is referred to as pricing to marketing. Pricing to marketing is based on the logic that the exchange rates should not affect the pricing of goods for customers in the target market. This approach of pricing is a disadvantage to the company when the USD rises at levels about the local currency. Moreover, the only way the company can deal with this is by lowering the cost of production, which can be tough sometimes. Altering with local prices is the only way that the firm can address the issue and this, therefore, proves that price of goods in international marketing depends heavily on foreign currency exchange rates. It is often a common practice for manufacturers, which in this case is our company Allsmile to set the MSRP (manufacturer’s suggested retail price) and at the same time ensure that the whole distribution channel gets volume discounts (Schindler, 2012). Retailers have often had discretions on the store's final price on the products, but most follow the price set by the manufacturer. My team had the task of conducting global market research and providing estimated prices for all Allsmile products in the Latin American market. The retail price suggested by the manufacturer will always vary by texture, delivery system, formulation, and size. As my team and I were coming up with the MSRP, we put into consideration the product costs and the market conditions in the Latin American market. Often, manufacturers offer a discount of 15% to 30% off the MSRP, and this is dependent on the channel used or volume of products purchased. A good example is the Allsmile family size tube toothpaste; its MSRP is $ 3.5 and a 25% discount to the distributor. Therefore, a retailer would buy it at $2.62 [($3.5)*(1-0.25)]. Wholesalers often purchase products in large quantities thus their discount rises to 30%. It is for this reason that per unit revenue for Allsmile products is lower when they are sold to wholesalers who then sell the products to retailers than when the products are sold to retailers directly. For the same Allsmile family size, tube wholesalers would pay $2.45 per tube [($3.5)*(1-0.3)]. Wholesalers who buy Allsmile products offer retailers a 25% discount off the MSRP therefore; they would price the Allsmile family tube toothpaste at $2.62 per tube. After proper analysis of the products, my team came up with expected discounts for the various parts of the distribution channels shown in the table below. Table 1: discount channels and the discounts Distribution channel Discount Wholesale 30% Hypermarket Direct 25% Home based/ Internet Direct 25% Self-service Direct 20% Traditional Direct 15% It is important to consider that wholesalers may act as the primary channel and therefore can provide service to all the other different retail chains. In fact, through research, we were able to establish that about 80% of retailers or retail stores purchase the Allsmile products from the wholesalers while the remaining 20% purchase the products directly from us. However, the wholesalers serve the smaller retailers while the 20% who purchase directly from the manufacturer are the large Hypermarkets. Regulation of prices varies from country to country depending on the country's legislation and other factors. In most of the Latin American countries, the manufacturer sets the MSRP and additionally the manufacturer is needed to offer quantity discounts. We considered the MSRP for top brands of the 75-gram tube toothpaste in some of the Latin American countries with additional ingredients, and they are shown in the table below. Table 2: MSRP for top brands of the 75-gram tube toothpaste in some of the Latin American countries Country Britesmile (baking soda) Clean and White Dentacare Eversmile (hydrogen peroxide) Leading local/regional brand Argentina(A$) 5.2 - 4.28 - 4.13 Brazil (R$) - 3.85 3.16 3.38 3.28 Chile(Ch$) 852 - - - 714 Mexico(Mx$) - - - - 13.48 Peru(S/) - - - - 3.48 Venezuela(Bs) - - - - 2294 Pricing decisions by the management are important, and company and environmental factors are critical in the decision-making process of price determination (Morris & Morris, 1990). It is important for the price to be a reflection of the strategy chosen while considering target customer suggestions and the price of competitors. The market arithmetic of prices was an important tool for my team and me in determining the prices of Allsmile products in the global market. Other essential elements that we considered in determining the price include the slotting allowance, retail discount or volume discount, per unit margin, and the cost of the products sold. The slotting allowance is the extra discounts off the MSRP beyond those offered to wholesalers and manufacturers, therefore, allowing the product to obtain shelf space (Smith, 2012). Slotting allowance was crucial in creating distribution channels for Allsmile’s new products. These slotting allowances often range from 5% to 20% off the MSRP. It is important to go through the pricing report first, which contains the percentages of slotting allowances the competitors offer before determining the percentage your company would offer. Per unit, the margin is the margin the manufacturer gains on each product. All the remaining costs such as administrative and advertising costs are paid from the per-unit margin. The gross margin, therefore, becomes the per unit margin multiplied by the total number of units that the company sales. The costs of products that the company sales is also an element in the price decision process. It can be described as the variable cost of producing each unit including all the resources used. The retail discount or volume discount was already discussed earlier as a certain percentage of the MSRP (Mills, 2002). It is important in determining the selling price of the products to a particular retailer. Retail discounts depend on the volume of the goods bought by the retailer. The higher the volume, the higher the discount the retailer gets. It is then the duty of the retailer to set the selling price of the product to the customer. Each country has specific retail discounts for its retailers, and this is one of the primary reasons pricing of products id different in the various states. The chart below will illustrate the elements that determine the price decision-making process for the MSRP of a family tube size Allsmile toothpaste with an MSRP of $3.5. MSRP COGS (30%) Includes all tariffs and shipping Per Unit Margin (30%) Covers for all fixed and promotional costs Distributor Discount (30%) Slotting Allowance (10%) PROMOTIONAL AND FIXED COSTS Advertisement budget (media and adaptation costs ) Promotion budget Sales Force Costs (training, salaries, and other expenses) Admin Costs Fixed costs Net contribution Figure 1: elements that determine the price decision-making process for the MSRP of a family tube size Allsmile toothpaste with an MSRP of $3.5. Several shortcomings arise in the process of international or global marketing of products and pricing policies. The main issues that affect international marketing including export price escalations, inflation, transfer policing, price coordination, and currency movements. Inflation is a major challenge to international marketing because price setting and control of costs become imperative and will often need a large part of a company’s resources to be focused on the issue (Glowik & Smyczek, 2011). Alternatives or solutions have been recommended to deal with inflation and its effects on the global markets. The solutions include shortening of credit terms, getting raw materials from suppliers at low costs, and pursuing inventory turnovers at a rapid rate. Inflation is one of the major obstacles to the development of global marketing. Transfer pricing is another major challenge for global companies such as Allsmile; this is the complex nature of how to deal with related parts of the same business. Transfer pricing includes the prices charged on transactions that include the trade of finished products, raw materials, or services (Keegan, 1995). Local market conditions, tax policies, market imperfections, and joint ventures are some of the major aspects that influence transfer pricing which in turn influence the price of the products. The aspects discussed above are relevant to international marketing and pricing. It is ironical that most of the educational materials fail to provide a clear view of the elements with their level of importance. In the process of guiding international marketing, academic sources have failed to be updated with most of them discussing the issues based on past facts and data. International or global marketing is dynamic i.e. changes from time to time due to the changes in factors that affect it such as customer preferences, currency changes, inflation, and competition levels (Paul & Kapoor, 2008). It is, therefore, necessary for academic materials dealing with international marketing to be updated on a regular basis to provide entrepreneurs and scholars with the right facts and information. References GILLESPIE, K., & HENNESSEY, H. D. (2011). Global marketing. Mason, OH, Cengage South -Western. GLOWIK, M., & SMYCZEK, S. (2011). International marketing management strategies, concepts, and cases in Europe. München, Oldenbourg. HOFFMANN, S. (2008). Are the 4 Ps of international marketing of equal importance to all firms? What factors might cause some to more or less important than others? A short article. München, GRIN Verlag GmbH. http://nbn-resolving.de/urn:nbn:de:101:1- 201008283698. HOLLENSEN, S. (2016). Global Marketing. Pearson Education Limited. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&A N=1419709. KEEGAN, W. J. (1995). Global marketing management. Englewood Cliffs, N.J., Prentice-Hall. MATHUR, U. C. (2008). International marketing management: text and cases. New Delhi, IN, Sage. http://public.eblib.com/choice/publicfullrecord.aspx?p=409030. MILLS, G. (2002). Retail pricing strategies and market power. Melbourne, University Press. MOOIJ, M. K. D. (2013). Global marketing and advertising: understanding cultural paradoxes. https://nls.ldls.org.uk/welcome.html?ark:/81055/vdc_100025421418.0x000001. MORRIS, M. H., & MORRIS, G. (1990). Market-oriented pricing: strategies for management. New York, Quorum Books. PAUL, J., & KAPOOR, R. (2008). International marketing: text and cases. New Delhi, Tata McGraw-Hill. RICHTER, T. (2012). International marketing mix management: theoretical framework, contingency factors and empirical findings from world markets. Berlin, Logos. SCHINDLER, R. (2012). Pricing strategies: a marketing approach. Thousand Oaks, Calif, Sage Publications, Inc. SMITH, T. J. (2012). Pricing strategy: setting price levels, managing price discounts, & establishing price structures. Appendix Table 3: Discount channels and the discounts Table 4: MSRP for top brands of the 75-gram tube toothpaste in some of the Latin American countries Figure 1: elements that determine the price decision-making process for the MSRP of a family tube size Allsmile toothpaste with an MSRP of $3.5. Read More