International Pricing Strategy

Dana-Nicoleta Lascu Chapter 16

Copyright Atomic Dog Publishing, 2002

Chapter Objectives
Identify pricing-related internal challenges facing international firms Identify pricing-related challenges imposed by competition on international firms Identify pricing-related challenges imposed by the political and legal environment on international firms Identify pricing-related challenges imposed by the economic and financial environment on international firms Address international pricing decisions of international firms
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Pricing Impact
Pricing is especially important in international marketing strategy decisions, due to its effect on product positioning, market segmentation, demand management, and market share dynamics.

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Pricing Considerations
Nature of the product

Production plant locations

Distribution system used Economic climate Currency fluctuations and exchange rates

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Production Facilities
The location of production facilities determines the extent to which a company can control costs and price their products competitively. Multinationals shift production to take advantage of lower costs and exchange rates Small- to medium-size firms are limited to exporting Can price product out of the market

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Ability to Track Costs

Products can be manufactured and assembled in different countries.

Difficult to track costs

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Environmental Considerations
International companies must react effectively to changes in the competitive environment, in the political and legal environment, and in the economic and financial environment.

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Environmental Influences
Competition

Keep product prices low Offer legal copycat products Retail challenges difficult to identify

Competition from unauthorized channels

Cheaper prices in countries with weaker currencies

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Dumping
Foreign company can impose high prices at home as result of trade barriers imposed against imports Company uses profits to sell at much lower prices in foreign markets

Builds market share Suppresses profitability of competitors with open home markets

Anti-dumping policies vary Challenges and charges abound

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Environmental Influences
Political and Legal

Dumping Setting limits on gross margins Setting price limits Local government subsidies to manufacturers Tariffs Restricting repatriation of profits by multinationals Taxing and/or encouraging reinvestment of profits

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Transfer Pricing
Products priced at market level

Help multinational under-report profits Decreases tax burdens in countries where company has foreign direct investment

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Price of Protectionism
Adds to final price paid by consumer

7% ($600b) of European Union GDP

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Environmental Influences
Economic, Financial, Monetary

Inflation Fluctuating exchange rates Hard versus soft currencies

Counter trade

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U.S. Position on Countertrade

In line with GATT and the WTO, U.S. policy opposes government-mandated counter trade. Interferes in the case of firms that operate with U.S. government financing, or with firms that have contracts with the U.S. government Does not deter firms from engaging in counter trade with private parties.

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Countertrade Brokers
Perfect matches for product exchanges rare

Exchanges are complex

Numerous companies broker barter deals

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Countertrade
Advantages Disadvantages

Facilitates sale of products in emerging markets

Can help an exporting company bypass trade restrictions

Foreign lenders could have prior claim on goods

Restrict profit margins Encourage economic inefficiency Prices are distorted Could receive inferior quality goods

Exchange partners can become competitors

Involves extensive negotiations
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Types of Countertrade
Monetary Exchange

Barter
Clearing Agreement Switch Trading Compensation Counter purchase

Offset Purchase
Buyback Agreements
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Setting Prices
Tends to be experience driven

Highly decentralized
Important for marketing managers to be familiar with the price elasticity of their products

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Pricing Practices
Higher Home Market Prices Justified by: Lower labor or raw material cost in the international market Strong local competition in the international market Lower buying power of host-country consumers Goal: increase market share via penetration pricing

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Pricing Practices, continued

Lower Home Market Prices Justified by: No cost advantages to producing overseas Few or no challenges from international competition Limited market potential International buyers can afford higher prices

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Aggressive Export Pricing

Dynamic Incremental Pricing Assumes certain fixed costs Does not factor in international promotion costs for domestic distribution or full overhead Product cost reflects only variable costs

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Standardized vs. Local Pricing

Local Pricing Prices set to meet purchase power of consumers and to account for differences in distribution systems, market position, and taxes Standardized Pricing Uniform price worldwide

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Penetration Pricing and Skimming

Penetration Pricing Price lower than competitors in order to quickly penetrate the market at competitors' expense Skimming Pricing above competitors prices when competition is minimal Focus on quality, uniqueness and status

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Chapter Summary
Identified pricing-related internal challenges facing international firms Identified pricing-related challenges imposed by:

Competition Political and legal environment Economic and financial environment

Addressed international pricing decisions

Copyright Atomic Dog Publishing, 2002