Five main factors affecting oil price fluctuations

In the past decades, any changes in oil prices have been associated with political and economic chaos, and seen as a trigger for inflation and recession. As we all know, the price of oil affects a variety of goods and services because oil is used as an energy source in many economic activities. However, in the global market the price of oil is dependent by many different stimuli.  In this blog, we would like to discuss the determinants of global oil prices.

#1. The Organization of Petroleum Exporting Countries (OPEC)

OPEC is an intergovernmental organization of 13 oil-exporting developing countries. Their main goal is to manage and unify the petroleum policies and procedures, and ensure prices remain stable within global oil markets. Nations of OPEC are responsible for 46% of the world’s oil production. OPEC can affect the price of oil by stimulating (increasing/decreasing) oil output among member countries.

#2:  Supply and Demand

Demand for oil increases each year due to the global population and mean prosperity growth. As we all know, the best scenario for the global oil inventory will be when the supply will meet demand. However, often supply is a subject to a myriad of economic, political and technical forces. In the situation when production exceeds demand, surplus of oil can be stored. However, in the situation when consumption of oil exceeds demands, inventories can be used to meet the demand. Occasionally non-OPEC suppliers who generate 53% of the globe’s oil can be tapped. Nevertheless, they don’t have adequate reserves to dictate the oil prices and they can only respond to fluctuations of market. Where, OPEC can directly affect the market pricing, especially when the production of oil by non-OPEC countries falls.

#3:  Restrictive Regulation

Government has also a big impact on the oil prices because the majority of globe’s oil reserves and production are controlled by government-owned corporation. As we all know in US each state has own gas prices. This is due to the state and local taxes, different level of competition in local retail market, as well as suppliers and environmental regulation specific for each state.

#4:  Political Conflict

If oil-rich countries, such as Canada, become politically unstable, market could respond to this situation by increasing the price of oil so that suppliers are still willing to pay the highest bidder for a security.

#5:  Weather

Another unpredictable factor that could influence the oil prices is seasonal changes in weather. Hurricanes, tornados or thunderstorms can substantially affect production facilities and stimulate pricing spikes.

 

 

2018 FIFA World Cup Russia – Pricing Strategy

With the 2018 FIFA World Cup just around the corner, we thought would be good idea to review the FIFA tickets pricing strategy.

The 2018 FIFA World Cup™ has offered four different prices categories:

Category 1 – this category represents the highest priced tickets and located in prime areas within the Stadium

Categories 2 and 3 – these two categories are located outside of the Category 1 area.

Category 4 – this is the category with most affordable ticket prices and is sold exclusively to, and must be used by, individuals fulfilling the personal condition of Russian Residency.

Additionally FIFA reserves the right to allocate specific seats to a different ticket category on a Match-by-Match basis. There will be two types of tickets available for the 2018 FIFA World Cup™.

  • Individual Match Tickets: These are tickets for a specific Match, which are available for Match No. 1 to Match No. 16.
  • Team Specific Ticket Series: These are tickets for a for a specific host city (Kazan Arena, Spartak Stadium, Fisht Stadium, Saint Petersburg Stadium)
  • Venue Specific Tickets: These are tickets for all group stage matches, semi-finals and Match for Third Place, played at the specific venue. They do not include the Final in Saint Petersburg

The FIFA’s Secretary General, Fatma Samoura, said:  “We wanted to make sure that we priced tickets fairly to make the events accessible to as many people as possible. We therefore conducted thorough market research and have priced the tickets accordingly.”

Comparing the ticket price for the 2018 FIFA World Cup in Russia and 2014 FIFA World Cup in Brazil, it can be seen slight increase in the cost of the cheapest tickets for foreign fans by about 16%.  The best and affordable prices of tickets for group match will sell for $105; this is $15 higher than the tickets in Brazil for the same group match.

The most expensive is the category one and it will sell for the final game at $1100, a $110 (11%) increase on the equivalent tickets in Brazil in 2014.

Russian residents will be able to purchase the tickets at the discounted price, the cheapest ticket for the final retail at 1,280 (approximately $22) and the most expensive will be offered at 7040 rubbles (approximately $123).

So far, the following numbers of tickets for the FIFA Confederations Cup 2017 had been sold:

  • The Visa pre-sale period – 48,504 tickets sold
  • Sales Phase 1 – the random selection draw – 82,478 tickets sold
  • Sales Phase 1- the first-come, first-served sales phase came – 211,745 tickets sold (via FIFA.com/tickets)
  • Last minute Sales Phase will be open from April 19- July 2, 2017

In total, 695,000 tickets are available for general public purchase. Fans can purchase up to six tickets per match, up to a maximum of ten matches.

The 2018 FIFA forecasted $5.5 billion revenue for the 2018 World Cup in Russia and predicted that there will be more than 3 million tickets available for sale. For more information go to FIFA’s official website.

 

Airline pricing strategy

Shopping for the best airline ticket can cause a serious headache. As all we know, finding the best airfare deal is very difficult in an increasingly competitive marketplace.  Airlines goal is to make most money, but we as customers want to spend as less as possible money. Therefore, what the airline pricing secrets are and how carriers come up with fares? This blog will examine different pricing strategies adopted by major airlines.

#1 Price Discrimination

Price discrimination occurs when airlines sell the same ticket to different groups of consumers at different prices. Airlines are allowed to charge different prices depending on many conditions:

  • Time of buying ticket- airlines do not have hard and fast rule, but usually if customer purchase a ticket far in advance it tends to be cheaper. However, if demand for a flight is higher, then the airline will most likely increase the price of that flight. Moreover, remaining tickets will be sold for higher price. Nevertheless, if a demand for flight is low, the airline will do opposite and decrease the price of ticket.
  • Time of departure – airlines often price tickets at different prices depending on the season and day of the week. During summer and holiday season, the price will be higher because demand to fly is greater. The same situation applies during the week time, Monday to Friday flights will be much more expensive because business travelers usually occupy these.
  • Age profile – discounts fares are offered to special groups of people, such as students, seniors and military personnel. For example, those passengers with age 65 and older can fly at some discount for selected travel destinations.
  • Quantity bought – the major airlines often sell large quantity of tickets to consolidators at bulk prices. When consolidators are unable to sell the ticket, they willing to sell them at heavy discount to customers searching for last minute flight deals.

#2 Bundling

Bundling occurs when multiple products (a fly ticket, hotel and car rental) are sold together as a package.  Airline industry has successfully used bundling strategy to create value for traveling customers, to reach different customer segments and to increase revenue.

# 3 Predatory Pricing

Predatory pricing occurs when one company price below an appropriate measure of cost to eliminate a competitor. Many different airlines competing against each other for market share, for example, United, Delta, American, US Air, Southwest, and Jet Blue. Since there is ongoing competition in the airline industry, many airlines organize pricing campaigns to oust other airlines from their spaces.

 

Top 8 factors affecting on pricing in the international market

Selling product internationally requires understanding different factors that may have an impact on how the company set the price. The numerous factors that affect pricing decisions are briefly summarized as follows:

    1. Cost – is the main factor that affects pricing decision. A firm should take into consideration direct cost such as raw materials and indirect cost such as distribution overhead in order to achieve more accurate profit calculations.
    2. Competition- competing in international market is much more challenging than in the local market, because the exporters have to compete with foreign firms that manufacture under different regulations and market environment. Additionally, competing in developed countries is much harder due to the established advantages by local companies.
    3. Attitude Towards Countries’ Products – consumers in the international market often develop negative perception against imported goods from the developing countries. Usually products from developed nations possess higher prices than products from developing nations.
    4. Brand Image – company who has established a strong brand identity such as Apple, can charge a premium price in the international market.
    5. Government Regulation – the exporting company should be familiar how price can be set in the market in which their goods are sold. These price regulations are government enacted and must be followed at any time. The government may influence the price by controlling the price directly, either setting price ceilings (how high price may be set) or setting price floors (how low price may be set).
    6. Custom Duties and Taxes Aspectexporters should find out from the government of importing countries what duties and taxes they would have to pay. The exporter should take such fee while fixing the export price.
    7. Order Size prices of export often is determined by the size of shipment. Usually smaller shipments are more expensive than the largest one. Thus, it is very economical to send the large volumes and always define the minimum quantity for export with the customers.
    8. Positioning Strategy: the firm must develop a positioning strategy for exporting. Some companies prefer value positioning strategy (low average unit cost) others quality positioning strategy. Marketers can also use the demographic- related strategy or competitive positioning strategy.

Type of Transfer Pricing in International Marketing

When selling/buying product internationally, it’s vital to understand different approaches the company can take in this intra-corporate transactions. The main goal of transfer pricing is to maximize overall after-tax profits of company. Other goals are as follows: decreasing occurrence of custom duty fee, avoiding the quota restrictions on imported goods and lowering exchange exposure. Therefore, we are going to exam some of the common methods of transfer pricing for international marketing.

  1. Transfer At Cost Approach – this method is commonly used by companies that recognize that sales by global partners contribute to company profitability by creating economy of scale in local manufacturing operations. This tactic adopts lower costs lead to better affiliate implementation, which ultimately profit the entire organization. This method helps keep company’s payments at a minimum. Firms utilizing this approach have no profit expectation on transfer sales. However, their expectation is that the partner will generate the profit by subsequent resale.
  2. Cost-Plus Pricing Approach – firms utilizing this approach are selecting the position that profit must be revealed for any services or products at every phase of movement through the business system. This approach may result in a price that is very irrelevant to competitive or demand situations in international markets.
  3. Market –Based Transfer Price – also referred to arm’s length pricing, this approach is the form of transfer pricing in which the sales transactions happen between two unrelated (arm’s length) parties. This approach can deprive governments of their fair share of taxes from global firms and expose international business to possible double taxation. This method is often utilized in commodity –type goods, where the market price is set without variation.
  4. Cost – Plus Pricing Method- this approach is commonly used by companies who need to show the profit for any product or services at every stage of transfer through the firm’s system. This method is successfully used by many experts, even though cost-plus pricing may result in a price that is unrelated to competitive or demand situations.

Below are some advantages of the international transfer pricing strategies:

  1. Decreasing income taxes in high-tax nations by overpricing commodities transferred to units in such nations; incomes are eliminated and shifted to low-tax nations.
  2. Reducing tax costs by shipping commodities into high-tariff nations at minimal transfer prices so that payment base are low.
  3. Assisting dividend repatriation (process of converting a foreign currency into the currency of one’s own country) when dividend repatriation is controlled by government policy by inflating prices of commodities transferred.