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ONLINE CERTIFICATE IN EXPORT MANAGEMENT 2012
COURSE 3. PRICING YOUR PRODUCTS & BUDGETING FOR EXPORT
EXPORT MARKET ENTRY PRICING STRATEGIES
LIFE CYCLE PRICING METHOD
NOTE:
This is a copy of the actual page from the online course.
Click here
to review the complete table of contents for
the chapter in which it appears.
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Expected Outcome
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Your initial profit margins will be high despite the existence of several competitors in the local market. Competitors will meet your
price reductions but you will maintain favorable profit margins because of economies of scale over the life cycle of the product.
The key element is the timing of price reductions
as your product progresses toward the end of its life cycle. If you lower the price
too slowly, there will be periods when your price will be too high and you will lose sales revenues and profits. The opposite will be
true if you lower the price too quickly: you will sacrifice a portion of the sales revenues and profits that you would have earned
had you waited longer to reduce the price.
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Determining Factors
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1.
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Marketing Objective:
Long-Term Profits.
You are interested in developing the export market in a systematic manner.
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2.
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Product Characteristics:
New But Not Unique.
Your products are in the introductory phase of their life cycles.
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3.
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Market Size:
Medium to Large.
Sales potential appears to be extensive.
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4.
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Competition in Market:
Many Competitors.
Existing competitors will reduce prices to protect their market share.
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5.
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Production Capacity:
Large.
You are able to supply product to the new export market without endangering your current production requirements.
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6.
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Marketing Program:
Strong.
You are willing to support a long-term promotional effort.
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7.
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Financial Commitment:
Large.
You will expend significant funds for advertising, sales promotion, customer service and foreign travel.
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8.
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Resulting Entry Price:
Higher Prices.
Your initial profit margins will be favorable. You plan to reduce your prices in stages over the anticipated life cycle of the product.
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Advantages
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1.
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You will develop a long-term presence in the export market.
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2.
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As sales develop, high initial profit margins will contribute immediately to your cash flow position. Profits over the life cycle
of the product will be favorable as sales volume and efficiency of scale reduce per-unit production and marketing costs.
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Disadvantages
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1.
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You will be taking a large financial risk by committing significant funds and personnel.
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2.
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Competitors may quickly enter the market.
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3.
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Competitors may quickly reduce prices which will adversely affect your profit margins.
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4.
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You must be able to anticipate competitive pricing moves and react quickly.
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Copyright 1987 - 2012, Export Institute of the United States
Telephone: (952) 943-1505, http://www.exportinstitute.com
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