Copyright Atomic Dog Publishing, 2002 International Pricing Strategy Dana-Nicoleta Lascu Chapter 16.

Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002

International Pricing Strategy

Dana-Nicoleta Lascu

Chapter 16


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


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.


Pricing Considerations

• Nature of the product

• Production plant locations

• Distribution system used

• Economic climate

• Currency fluctuations and exchange rates


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”


Ability to Track Costs

• Products can be manufactured and assembled in different countries. Difficult to track costs


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.


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


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



• 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


Transfer Pricing

• Products priced at market level Help multinational under-report profits Decreases tax burdens in countries where company has

foreign direct investment


Price of Protectionism

• Adds to final price paid by consumer 7% ($600b) of European Union GDP



• Economic, Financial, Monetary Inflation

Fluctuating exchange rates

Hard versus soft currencies

Counter trade


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.


Countertrade Brokers

• Perfect matches for product exchanges rare

• Exchanges are complex

• Numerous companies broker barter deals


Countertrade

Advantages

• Facilitates sale of products in emerging markets

• Can help an exporting company bypass trade restrictions

Disadvantages

• 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


Types of Countertrade

• Monetary Exchange

• Barter

• Clearing Agreement

• Switch Trading

• Compensation

• Counter purchase

• Offset Purchase

• Buyback Agreements


Setting Prices

• Tends to be experience driven

• Highly decentralized

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


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


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


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


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


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


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 International Pricing Strategy Dana-Nicoleta Lascu Chapter 16.

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