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Learning Objectives
Recognise components of pricing as competitive
LO1 tools in international marketing
Discuss how to control pricing in parallel import or
LO2
gray markets
Explain price escalation and how to minimise its
LO3 effect
Identify the various approaches to international
LO4 pricing

INTERNATIONAL PRICING STRATEGY LO5 Understand countertrading and its place in

international marketing practices
Chapter 7 LO6 Explain the mechanics of price quotations
Mr.Le Hong Dac/Mr. Le Nguyen Hoang

International Pricing International Pricing

 Setting and changing  Rolex Cellini
prices are key Cellissima Watch:
strategic marketing An example of the
decisions Price-Value
Relationship
 Prices both set values
and communicate in
international markets

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International Pricing International Pricing

 An offering’s 04
Currency
price must reflect PRICE Fluctuation
VALUE
01
the quality and IDEAL
PRODUCT Tariffs
03
value the Competition

consumer QUALITY
05
perceives in the
02 Price
Quotation
product Costs

Source: Keegan & Green (2013: 5) Source: Keegan & Green (2013: 330)

Pricing Policy Pricing Objectives

 The country in which business is being conducted,
the type of product, variations in competitive
conditions, and other strategic factors affect pricing
activity
 Active marketing in several countries compounds the
variables relating to price policy
 An explicitly thought out, defined pricing policy helps
avoid setting a price in haste

Source: Keegan & Green (2013: 320)

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Parallel Importation or
Pricing Objectives
Gray Markets
 It is not always possible to control end prices  On account of
 Broader product lines and the larger the number of competition, firms
countries involved, the more may have to charge
different prices from
complex the process of
country to country
controlling prices charged
to the end user  In international
marketing, this causes
a vexing problem:
Parallel Importation
or Gray Markets

Parallel Importation or Parallel Importation or

Gray Markets Gray Markets
 The possibility of a parallel market occurs whenever
price differences are greater than the cost of
transportation between two markets
 Parallel imports develop when importers buy
products from distributors in one country and sell
them in another to distributors who are not part of
the manufacturer’s regular distribution system

Source: Cateora et al. (2011: 524)

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Parallel Importation or Parallel Importation or

Gray Markets Gray Markets
 Thus, it is possible for an intermediary to buy products
in countries where it is less expensive and divert it to
countries where the price is higher and make a profit
 Exclusive distribution, a practice often used by
companies to maintain high retail margins encourage
Country Price Country Price retailers to stock large assortments, or to maintain the
Spain $18 France $55 exclusive-quality image of a product, can create a
Germany $39 London $79 favorable condition for parallel importing

Exhibit 18.1: How Gray Market Goods Approaches to

End up in U.S. Stores International Pricing
 Full-Cost Pricing: no unit of a similar product is
different from any other unit in terms of cost, which
must bear its full share of the total fixed and variable
cost
• TC = TVC + TFC
• Total Cost per unit = TC/Q
• Full-Cost Pricing = Total Cost per unit + Desired ROI per unit

Source: Cateora et al. (2011: 526)

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Approaches to Approaches to
International Pricing International Pricing
 Full-Cost Pricing Example:  Variable-Cost Pricing: firms regard foreign sales as
• Total Fixed Costs for producing 1000 units $100,000 bonus sales and assume that any return over their
• Total Variable Costs for producing 1000 units $50,000 variable cost makes a contribution to net profit
• Total Cost $150,000 • Unit Variable Cost = TVC/Q
• Total Cost per unit $150 • Variable-Cost Pricing = Unit Variable Cost + Desired ROI per
• Markup Percentage 100% unit
• Full-cost pricing = $150 + ($150 * 100%) = $300

Source: Cateora et al. (2011: 526) Source: Cateora et al. (2011: 526)

Approaches to Approaches to
International Pricing International Pricing
 Variable-Cost Pricing Example:  Skimming
• Total Variable Costs for producing 1000 units $50,000 Pricing: This is
used to reach a
• Unit Variable Cost $50
segment of the
• Markup Percentage 100% market that is
• Variable-cost pricing = $50 + ($50 * 100%) = $100 relatively price
insensitive and thus
willing to pay a
premium price for a
product

Source: Cateora et al. (2011: 526) Source: Cateora et al. (2011: 526)

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Approaches to
International Pricing
 Distinctive iPhone and
Curved-Screen TVs
Marketed with a
Skimming Pricing
Strategy
Approaches to
International Pricing
 Penetration
Pricing: This is used
to stimulate market
growth and capture
market share by
deliberately
offering products at
low prices
Source: Cateora et al. (2011: 526)
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Approaches to
International Pricing
Large investments on R&D
1
Nature of demand is uncertain
2
Competition will launch similar
When
to use
3 product in near future
Skimming Limit competitors
Pricing? 4
Innovative products that slows
5 maturity of the market
Approaches to
International Pricing
 Wal-Mart - Everyday
low pricing (EDLP):
Pricing strategy of
continuously offering
low prices rather than
relying on such short
term price cuts as
cents-off coupons,
rebates, and special
sales
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Approaches to Approaches to
International Pricing International Pricing
 Southwest Airlines, Known for It’s Low Prices, Often
Premium Market does not exist
Enters New Markets with Incredibly Low Penetration 1
Prices and Then Maintains Market Share With Everyday
Focus is on mass market
Low Pricing Strategy 2
Entire demand curve is elastic
When
to use
3
Penetration Discouraging new competitive
Pricing? 4 entrants

Creating economies of scale

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Price Escalation Factors in Price Escalation

 Price escalation refers to  Costs of Exporting: the term relates to situations in
the added costs incurred which ultimate prices are raised by shipping costs,
as a result of exporting insurance, packing, tariffs, longer channels of
products from one distribution, larger middlemen margins,
country to another special taxes, administrative costs, and exchange
rate fluctuations
 Taxes, Tariffs, and Administrative Costs: These costs
results in higher prices, which are generally passed
on to the buyer of the product

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Factors in Price Escalation Factors in Price Escalation

 Inflation: Inflation causes consumer prices to  Middleman and Transportation Costs: Longer
escalate and the consumer is faced with rising prices channel length, performance of marketing functions
that eventually exclude many consumers from the and higher margins may make it necessary to
market increase prices
 Exchange Rate Fluctuations and Varying Currency
Values: Currency values swing vis-à-vis other
currencies on a daily basis, which may make it
necessary to increase prices

Source: https://tradingeconomics.com/country-list/inflation-rate?continent=asia

Exhibit 18.2: Sample Causes and Effects Approaches to Lessening

of Price Escalation Price Escalation
 Lowering Cost of Goods: Firms can lower costs by
eliminating costly features in products or by
manufacturing products in countries where labor
costs are cheaper
 Lowering Tariffs: Firms can lower prices by
categorising products in classifications where the
tariffs are lower

Notes: All figures in U.S. dollars; CIF = cost, insurance, and freight; n.a. = not applicable. The exhibit assumes that all domestic
transportation costs are absorbed by the middleman. Transportation, tariffs, and middleman margins vary from country to country,
but for the purposes of comparison, only a few of the possible variations are shown.

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Approaches to Lessening
Dumping - Pricing policy
Price Escalation
 Lowering Distribution Costs: Firms can design  World Trade Organization (WTO) rules allow for the
channels that are shorter, have fewer middlemen, imposition of a duty when goods are dumped
and by reducing or eliminating middleman markup
 Using Foreign Trade Zones: Firms can manufacture
products in free trade zones where the incentive
offered is the elimination of local taxes, which keep
prices down

Dumping - Pricing policy Administered Pricing

 One approach classifies  Administered pricing is an attempt to establish
international shipments prices fixed by Government and is mostly based on
as dumped if the
products are sold below Political considerations.
their cost of production  Such prices may also be arranged through the
 The other approach cooperation of competitors; through national, state,
characterises dumping as or local governments; or by international agreement.
selling goods in a foreign  2 forms of Administered Pricing include: Cartel and
market below the price of Government-influenced pricing
the same goods in the
home market

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Cartels Government-Influenced Pricing

 A cartel exists when  Companies doing business in foreign countries

various companies encounter a number of different types of
producing similar government price setting
products or services  To control prices, governments may establish
work together to margins, set floor or ceiling price, restrict price
control markets for changes, compete in the market, grant subsidies, and
the types of goods act as a purchasing monopsony or selling monopoly
and services they
produce

Government-Influenced Pricing Administered Pricing

 In Jamaica: Government  The legality of administered pricing arrangements of
set ceiling (a form of various kinds differs from country to country and
administered pricing) on from time to time.
retail price of wheat flour  A country may condone price fixing for foreign
to protect low-income markets but condemn it for the domestic market, for
individuals instance.
 The U.S. Government sets
floor price for steel imports
to stem flow from China

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Four Distinct Transactions in

Countertrade as a Pricing Tool
Countertrading

1. Barter: is the direct exchange of goods between

two parties in a transaction

Countertrade is a pricing tool that every

international marketer must be ready to employ

Source: Keegan & Green (2013: 343)

Four Distinct Transactions in Four Distinct Transactions in

Countertrading Countertrading
3. Counter-purchase or
2. Compensation deals: is the payment in goods and off-set trade
in cash 3.1. Direct off-set trade:
when some components
of the item sold are to be
manufactured within the
buyer’s country and that
the seller agrees to buy
those components to use
them in-house.

Source: Keegan & Green (2013: 344) Source: Keegan & Green (2013: 344)

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Four Distinct Transactions in Four Distinct Transactions in

Countertrading Countertrading
3.1. Indirect off-set trade: 4. Buyback: Under the buyback agreement, the
when the buyer requires
seller supplies plant, equipment or technology and
the seller to enter into a
long term industrial or agrees to buy goods produced with that plant, or
other co-operation and equipment as payment.
investment, but this co-
operation or investment is
not related to goods
supplied by the seller.

Source: Keegan & Green (2013: 344) Source: Keegan & Green (2013: 344)

Why Purchasers Impose

Proactive Countertrade Strategy
Countertrade Obligations
 To Preserve Hard Currency
Answering the following questions is suggested
 To Improve Balance of Trade before entering into a countertrade agreement:
 Is there a ready market for the goods bartered?
 To Gain Access to New Markets
 Is the quality of the goods offered consistent and
 To Upgrade Manufacturing Capabilities acceptable?

 To Maintain Prices of Export Goods  Is an expert needed to handle the negotiations?

 Is the contract price sufficient to cover the cost of
 To Force Reinvestment of Proceeds barter and net the desired revenue?

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Price Quotations Price Quotations

 In quoting the price of goods for international sale, a  Gasoline Prices: Where the Money Goes
contract may include specific elements affecting the
price:
• Credit
• Sales terms
• Transportation
• Etc.

Price Quotations Price Quotations

 Price quotations must specify the currency and the
quantity definition to be used because different
countries use different units of currency and
measurement

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