About International Pricing:
Pricing is one of the most critical parts of the marketing mix for international firms. Pricing, above all other elements of the marketing mix, is what creates revenue for the firm. The remaining “P’s (Product, Placement, and Promotion), contribute to cost for a company. It can be observed that pricing technique can either make or break expansion efforts. Marketers must work cooperatively with other organizational departments, mainly Finance, to integrate finance, accounting, manufacturing, tax and legal components into the chosen pricing strategy. One of the biggest obstacles for multinational firms to overcome is how to set prices across different countries. There are many factors to consider to ensure that parallel trade or gray market situations do not occur.
Drivers in Foreign Market Pricing:
Many different factors come into play when setting prices for the same product in different countries. Major influencers are labeled the 4 C’s:
- Company (costs, company goals)
- Customers (price sensitivity, segments, consumer preferences)
- Competition (market structure and intensity of competition)
- Channels (of distribution)
|Item||New York||Hong Kong||Seoul||Paris||London||Sydney|
|BlackBerry Bold 9000||$571||$657||$666||$656||$735||$754|
International Pricing Issues
- Export Price Escalation: Exporting products requires more steps and higher risks than selling products domestically. To make up for incremental costs, such as shipping, insurance and tariffs, foreign retail prices may often become much higher than prices in the home country of where a product is produced. The most important questions to ask yourself as a marketer are: will my customers pay an inflated price for our products/services? and will the price of our product make allow us to compete successfully with other firms? – - If the answer to these questions are negative, then there are 2 approaches to dealing with price escalation. The first way is find a way to cut the export price, and the second is to position the product as a exclusive or premium brand.
- Inflation: Intense and unrestrained inflation rates in countries can become a huge obstacle for multinational corporations. In places where inflation rates are rampant, setting prices and controlling costs are imperative, often involving complete dedication by marketing and financial divisions of an organization. There are many alternatives to protect against the affects of inflation. Common plans include modifying components of products or packaging materials, getting raw materials from low-cost suppliers, shortening credit terms, including escalator clauses in long-term contracts (used in many b2b situations), quoting prices in stable currencies and pursuing rapid inventory turnovers. When governments impose price controls, which may accompany wage freezes, companies must also adapt several plans of action. Often in these circumstances, businesses will alter their product lines to minimize negative affects from price controls, change defined market segments, launch new products, spark negotiations with the government, and try to better predict when pricing controls may occur. In extreme cases, companies may choose to exit foreign markets when inflation or pricing controls become too costly to the company. If, however, a company can better manage these challenges, they will gain a long-term competitive advantage by creating higher barriers to entry for potential new competitors.
- Currency Movements
- Transfer Pricing
- Anti-dumping Regulations
- Price Coordination
- The nature of your customers
- The amount of product differentiation
- Nature of your distribution channels
- Nature of you competition
- Market Integration
- Characteristics if your internal organization
- Government regulations
The international marketer can use countertrade to gain rewards when conducting business globally. Countertrade describes many unconventional trade-financing transactions that involve some form of non-cash compensation. In recent times, countertrade has become more popular. The most common forms of countertrade are barters, clearing arrangements, switch trading, buyback, counterpurchases and offsets. The most important idea to remember from countertrade is that its benefits may cause short-term or long-term benefits for your company, but there are potential risks involved. For more information on the motives behind countertrade and the risks involved, visit these websites:
Kotabe, Masaaki, and Kristiaan Helsen. Global marketing management. Hoboken, NJ: J. Wiley, 1998. Print.