1 INTERNATIONAL MARKETING MANAGEMENT SESSION 11: INTERNATIONAL PRICING

2 ISSUES IN ESTABLISHING INTERNATIONAL PRICING POLICY n Use of Price as a Competitive Tool n Standardized vs. Differentiated Prices

3 PRICING: BARRIERS TO STANDARDIZATION n Shipping and Transportation Costs, Tariffs n Income Levels, Price Sensitivity n Prices of Competing and Substitute Products n Trade Margins, Taxes, Price Regulation

4 FACTORS COMPLICATING INTERNATIONAL PRICING DECISIONS n Foreign Exchange Risk: Changes in Value of One Currency vs. Another HEDGING n Rates of Inflation n Lack of Foreign Exchange BARTERING n Gray Markets

5 PORTRAIT OF A DEAL

6 GRAY MARKETS DEFINITION Branded or trade-marked product sold through unauthorized distribution channels triggered by price differentials between countries POSITIVE CONSEQUENCES Taps Price-Sensitive Customers NEGATIVE CONSEQUENCES Damage to Trademark/Quality Image Legal Liabilities -- Warranties, etc. Strained Channel/Distributor Relations Disruption of Global Marketing Strategy STRATEGIES TO COUNTERACT GRAY MARKETS Price Cutting Differentiate Product Model, Warranties, etc. Cutoff/Control Supply Promote Gray Market Product Limitations

7 COST-BASED PRICING COSTS Production Freight and Packaging Handling and Processing Costs DUTIES Import Duties Custom Duties MARGINS Importer Margins Distribution Margins PRICE ESCALATION

8 NON-COST FACTORS TO CONSIDER IN INTERNATIONAL PRICING DEMAND Price Sensitivity Modes of Payment Quality and Prestige Associations COMPETITION Prices of Competing and Substitute Products Competitor Reaction DISTRIBUTION Availability of Certain Outlets/Discounters, etc. Regulation of Retail/Wholesale Margins and Prices

9 ONE CAR, SO MANY PRICES Prices for a Volkswagen Golf* BRITAIN$13,040 FINLAND8,290 FRANCE10,510 GERMANY11,040 ITALY10,690 * Excludes taxes DATA: EUROPEAN UNION

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11 SUMMARY n Aggressive Pricing as Difficult to Sustain n Difficult to Standardize Pricing Internationally n Importance of Considering Demand, Competition and Infrastructure Factors