INTERNATIONAL PRICING

Price
A product cannot exist without a price.

Price

Price is important because it affects demand, and An inverse relationship between the two exists. Price should never be treated as an isolated factor

FACTORS AFFECTING PRICING DECISIONS

CURRNCY FLUCTUATIONS
There are two extreme positions to manage this: To fix the price of products in the target countrys market.

CURRNCY FLUCTUATIONS

To fix the price of product in the home countrys currency

INFLATION
In the inflationary environment the maintenance of the operating profit margins by a company becomes an essential requirement to protect itself from the effect of inflation.

GOVERNMENT CONTROL & SUBSIDIES

If the government actions limit the freedom of management to adjust prices, the maintenance of margin is definitely compromised. Government subsidies to domestic firms can also force an international company to make strategic use of sourcing to be price competitive.

COMPETITORS BEHAVIOUR

Pricing decisions are bounded not only by cost and demand but also by competitors actions. If competitors do not adjust their prices to rising costs then the actions of the company to adjust prices accordingly is severely constrained. Moreover if the competitors are manufacturing or sourcing in a lower cost country, then it may become necessary for your firm to cut prices to stay competitive.

PRICE & QUALITY RELATIONSHIP

In International Market the relationship between price and quality is weak i.e. more price is no longer an indicator of superior quality.

DEMAND & SUPPLY

Price, is a measure of product benefit act as an equilibrator of demand & supply. On supply side, suppliers compete for consumers limited funds by constantly cutting costs & increasing enhancing product value;

DEMAND & SUPPLY

On the demand side, any increase in demand is followed by a higher price, and higher price in turn moderate demand. The higher price, however usually induces manufacturers to increase the supply, and more supply should lead to reduction in price, which will then stimulate demand once again.

COST

Here the essential question is not whether cost is considered or not, rather what kind of cost is considered & to what extent? International marketing includes the following costs: marketing research, credit checks, business travel, international postage, telephone rates, and other costs involved foreign representatives, consultants, product modifications & special packaging

COST

The international marketer should remember that it is dangerous to be price competitive without being cost competitive. If a company is unable to control costs or to price sufficiently high to cover cost sooner or later it will be forced to leave the market.

ELASITICITY OF DEMAND

To be competitive it does not mean that a companys price must be at or below the market. a superior or unique product can command a higher price. So a company can insulate itself against cutthroat price competition to a certain extent by cultivating a unique and desirable image

MARKET SHARE

A high market share provides pricing flexibility because the company has the advantage of being above the market if it so chooses. The company can also choose to lower its price because of the better economies of scale derived from lower production & marketing cost.

INTERNATIONAL PRICING STRATEGIES

MARKET SKIMMING

Market Skimming strategy is a deliberate attempt by the marketer to reach a market segment that is willing to pay a premium price for a product, Sony is a frequent practitioner of this strategy.

MARKET SKIMMING

This strategy is often used in the introductory phase of the product life cycle; when both the production capacity and the competition are limited. The objectives are to: Maximize revenue on limited volume and to match demand to available supply. Reinforce customers perceptions of high product value

MARKET PENETRATION

Some international firms want to maximize their market share. This method is used as a weapon to gain market position. So they set the lowest price, assuming that the market is price sensitive. These firms believes that a higher sales volumes will lead to lower units costs and higher long run profits.

MARKET PENETRATION

Market Penetration is favorable in the following market conditions: o Market is highly price sensitive, & low price stimulates market growth; o A low price discourages actual & potential competition.

COST PLUS/ PRICE ESCALATION

Companies new to exporting frequently use a strategy known as cost-plus pricing to gain a toehold in the global marketplace. There are two cost plus pricing methods: Historical Pricing Method: it defines cost as the sum of all direct & indirect manufacturing & overhead costs.

ESTIMATED FUTURE COST METHOD Cost Plus pricing requires adding up all the costs required to get the product to where it must go, plus shipping & ancillary charges, and a profit percentage.

MARKET HOLDING
Those companies that want to maintain their share of the market adopt market-holding strategy. In single country it involves reacting to price adjustments by competitors; In global marketing currency fluctuations makes the company to react or trigger price adjustments. According to this strategy:

MARKET HOLDING
In case of home currency appreciation If the competitive situation in the international market is price sensitive, and the source countrys currency appreciates then it should not be passed on to the customers in the form of high prices. In such a situation the manufacturers must absorb the currency appreciation themselves and must lower their margins to maintain their market share. The home currency appreciation can also force a company to shift its sourcing to some other countries with weak currencies

MARKET HOLDING

In case of home currency depreciation It becomes difficult for the countries domestic companies to compete on price with imported products

INTERNATIONAL PRICING POLICIES

EXTENSION/ ETHNOCENTRIC
This policy requires that the price of an item be the same around the world and that the importer absorb freight & import duties. The only advantage of this approach is that it is extremely simple as no information on competitive or market condition is required for implementation; The disadvantage is that, as it does not respond to the competitive & market conditions of each national market therefore it neither maximizes the companys profits neither in each national market nor globally.

ADAPTATION/ POLYCENTRIC

This policy permits subsidiary managers to establish whatever price they feel is most desirable in their circumstances. No firms requirement that prices should be coordinated from one country to the next. It is sensitive to local conditions

ADAPTATION/ POLYCENTRIC

PROBLEMS: It may create product arbitrage opportunities (i.e. buying from the market where its price is less & selling where its price is more), where price disparities exceed the transportation & duty cost. It leads to Transfer pricing

ADAPTATION/ POLYCENTRIC

Valuable knowledge & experience within the corporate system concerning effective pricing strategies are not applied to each local pricing. It may send negative signal to the rest of the world about the quality of the product.

INVENTION/ GEOCENTRIC

Using this strategy a company neither fixes a single price worldwide nor remains aloof from subsidiary pricing decisions but instead strikes an intermediate position. This policy works on an assumptions that there are unique local market factors that should be recognized in arriving at a pricing decision like: Local cost lncome level competition local marketing strategy etc.

INVENTION/ GEOCENTRIC
For long run local costs plus a return on invested capital and personnel fix the price floor for the long term. For short term a company may decide to pursue a market penetration objective and price at less than the cost- plus return to establish a market.