I - Cross-cultural Price politics Flashcards
(28 cards)
Significance of price politics
Leverage effect of the prices
With a 1% decrease/increase (ceteris paribus) of …
… price, profit increases by 11.2%
… variable costs, profit increases by 7.8%
… sales volume, profit increases by 3.3%
… fixed costs, profit increases by 2.3%
Comparison with other politics
Advantages and disadvantages of price politics compares to product-, distribution, and communication politics
Pro:
- lower implementation costs
- faster implementation speed
- faster influence on consumption decisions
- higher influence on profit
Contra:
- possibility to withdraw the decision is more difficult
- it has a lower potential to increase customer loyalty
- it has a higher likelihood of imitation by competitors
Setting prices
The “Magic triangle” of the scope of price settings
Price setting is dependent from:
- costs
- competitors
- demand
International:
+ changes in currency exchange rates
+ state interventions (e.g. taxes and tariffs)
+ …
Setting prices
Specifics of setting prices in an international context (how it is done in practice)
- international pricing is mainly based on cost-plus pricing
- > assumption that more is secure
- > managers tend to set higher prices
- pricing for exported goods often on basis of partial costs
- > managers tend to set lower prices, the domestic market has to generate the find costs
Odd-pricing
Universal effect of “Odd-pricing”?
Intuitive assumption
Odd-pricing more relevant in high-context cultures
Odd-pricing
What is a “drop-off tendency”?
When the price of a product rises, decreases the share of consumers.
Odd-pricing
Universal effect of “odd-pricing”?
Empirical finding
- odd-pricing is less wide-spread in high context cultures
- are consumers in high-context cultures less affected by the illusion of low prices by odd pricing?
Western companies should not simply adopt their strategies to other country markets without checking how it works
Behavioral approach
S-O-R-Modell
Stimulus:
- price, price level, price optic, discount, coupon, etc.
Organism:
- price perception, price knowledge, price consciousness, willingness-to-pay, price preferences, etc.
Response:
- sales, revenue, profit, etc.
- > Culture influences what’s happening in the organism
- > standardization vs. adaptation
Cross-Cultural Differences in Price-Quality-Irradiation
Price-Quality-Relationship (Jo/Sarigollu)
Research Question and Treatment
Research Question:
- Does culture influence how consumers evaluate a product at a given price?
Treatment:
- A travel agency offered the same journey, but varied the price
Cross-Cultural Differences in Price-Quality-Irradiation
Price-Quality-Relationship (Jo/Sarigollu)
Empirical finding
Individualistic cultures
Individualistic cultures (Australia):
Stimulus:
- price
Organism:
- weak-price-quality irradiation
Response:
- cheap offering (lower than catalogue price)
Cross-Cultural Differences in Price-Quality-Irradiation
Price-Quality-Relationship (Jo/Sarigollu)
Empirical finding
Collectivistic cultures
Collectivistic cultures (Japan):
Stimulus:
- price
Organism:
- strong price-quality irradiation
Response:
- expensive offering (higher than catalogue price)
Cross-cultural Differences in price fairness
Cultural Influence of fairness perceptions (Bolton et al.)
Research Question and Treatment
Does culture influence how consumers evaluate the fairness of prices?
Treatment:
Variation in the price to be paid for one individual compared to another (China vs. US)
Cross-cultural Differences in price fairness
Cultural Influence of fairness perceptions (Bolton et al.)
Model (Treatment)
Stimulus:
- price the consumer has to pay vs. the price other consumers have to pay
Organism:
- perceived fairness
- activated processes: shame/anger
Influence of Stimulus -> Organism Relationship:
- indivudalism/collectivism, self construal
- relation to in-group vs. outgroup
Response:
- willingness to buy
Cross-cultural Differences in price fairness
Cultural Influence of fairness perceptions (Bolton et al.)
Empirical finding
Both US and Chinese consumers, perceive higher prices as unfair. However, there are differences:
China:
Prices are perceived especially unfair, if …
… own price higher than for a friend (vs. stranger)
… there is already a relationship to the company (vs. first purchase)
Price perception
Odd-pricing vs. lucky numbers (Westjohn)
Basic assumptions
- adaptation of the pricing strategy to local circumstances can be advantageous (i.e. if consumers are ethnocentric)
Superstition may be relevant:
- Western countries: No influences of superstition on pricing (-> ending 0, 5, 9)
- China: Price endings with “lucky numbers” (especially 8), rarely “unlucky numbers” (4)
Price perception
Odd-pricing vs. lucky numbers (Westjohn)
Do marketers use price endings with 4 and 8 less resp. more often in Singapore?
- Lucky pricing is used more frequently if prices are high
- Lucky pricing is used more frequently by eastern companies than western companies
Price perception
Odd-pricing vs. lucky numbers (Westjohn)
May Western companies increase the impression of being local by using lucky pricing?
Experiment: Eastern pricing (lucky 8 ending) vs. Western pricing (9 ending)
- direct effect of lucky pricing on the perception of being local
- indirect effect on the attitude towards the brand and the price attractiveness
- effects are less pronounced if consumers have a cosmopolitan mindset
Bargaining as perfect price differentiation
Bargaining depends on …
… development status of a country
-> low vs. high
… value of the object
-> e.g. low vs. high involvement products
… buying environment
-> structured vs. unstructured
… culture
- > Collectivism: +
- > uncertainty avoidance: -
Basics of Adaptation
Price differentiation
Goal and preconditions
Goal:
- Absorption of consumer surplus
Precondition:
- heterogeneous willingness to pay
- benefit of differentiation > costs of differentiation
Types of price differentiation
Criteria for price differentiation
Consumer Segments
- e.g. bank giro account for students at no costs
Time
- e.g. train: budget ticket, hotel: early bird rebate
Volume
- e.g. quantity/frequency discount
Type of business relationship
- e.g. discount for long-term customers
Price bundling
- e.g. Microsoft office package, fast food menus
Geography
- e.g. Price differentiation across countries
Standardization vs. Adaptation of prices
Factors influencing the S/A decision
Price standardization
- Standardization of products and brands
- global structure of organizations
- lower transportation costs
- reduction of trade barriers (e.g. EU, NAFTA)
- intensive world wide communication
- active sellers (grey markets)
Standardization vs. Adaptation of prices
Factors influencing the S/A decision
Price Adaptation
- Inflation rate/exchange rate
- culture specific consumer preferences
- different buying power
- local competitors
- legal conditions (e.g. tariffs, taxes, anti- dumping regulation)
- costs (e.g. wages, raw materials)
- infrastructure for distribution
tandardization vs. Adaptation of prices
Factors influencing the S/A decision
Conclusion
Standardizing pricing is more difficult than standardizing other Ps
- > many influencing factors
- > market power of traditional local retailers reduces the pricing scope of retailers
tandardization vs. Adaptation of prices
Advantages and Disadvantages of international Price Adaption
Benefits:
- absorption of different willingness to pay (consumer surplus) in different countries
Risks (if the consumer realized the adaption):
- reactance and exit of the customers
- customers decrease their reference price
- grey markets, arbitrage
