Page 222 - Marketing the Basics 2nd

214 Marketing: the Basics
transportation, tariffs, importer margins, wholesaler margins and retailer margins to the factory price. Plus it is simply expensive to do business in Tokyo where rents are high and so are wages. Depending on these added costs and currency fluctuations the product may sell for two to three times or more what it costs in the country of manufacture just to end up with the same level of profit. In some cases some products in supermarkets are cheaper in the inner city than in a wealthy suburb because they will simply not sell at the higher price point. The price charged by your key competitors provides a very real test to see if you can charge more.
Another issue is transfer pricing, that is the price that a company charges to its own subsidiaries in foreign countries. If it charges too high a price it may end up paying higher tariff duties although it may then pay lower income taxes in the foreign country. If the company charges too little it can be charged with dumping. Dumping is when a company charges either less than it costs or less than it charges in its home market, in order to buy its way into a market or capture high market share. When a country’s customs authority finds evidence of dumping it can typically levy a dumping tariff against the firm.
Many multinationals have to wrestle with the problem of grey markets, no, this is not marketing to older people. It is where branded products are diverted from normal or authorized distributions channels in one country and sold in another. This happens when there is a substantial price difference between the two countries. In North America quite a large business has sprung up with Americans, particularly older people who have a number of prescriptions, coming by bus to Canada to buy their drugs at very large discounts. Grey markets, unlike black markets, are not illegal but are quite irritating to the firms involved because they lose considerable amounts of profit and lose a degree of control of channels of distribution.
Multinationals try to prevent grey markets in several ways. First, by policing their distributors, looking for usually high sales figures that don’t make sense given their home markets. Another technique is to alter product characteristics or service warranties for different countries. For example you buy an HP printer in Hong Kong at a great price only to find that its service warranty is only good in that country. Though you should be upset with the store