1. Chapter 11 – Pricing and International Markets
Doole, Lowe and Kenyon
International Marketing Strategy

2. Learning Objectives
Discuss the issues that affect international pricing decisions
Evaluate different strategic options for pricing across international markets
Differentiate between the problems facing companies engaged in foreign market pricing and those faced by companies trying to coordinate strategies across a range of global markets
Find solutions to the problems of pricing in high-risk markets

3. Domestic vs international pricing
Analyzing the factors which influence international pricing
such as the cost structures, the value of the product, the market structure, competitor pricing levels and a variety of environmental constraints.
Confirming what impact the corporate strategies should have on pricing policy.
Evaluating the various strategic pricing options
and selecting the most appropriate approach.
Implementing the strategy through the use of a variety of tactics and procedures
to set prices at SBU level.
Managing prices and financing international transactions.

4. The factors affecting international pricing decisions
Factors influencing the pricing strategy
Company and product factors:
Corporate and marketing objectives
Firm and product positioning
Product range, life cycle, substitutes, product differentiation and unique selling propositions
Cost structures, manufacturing, experience effect and economies of scale
Marketing, product development
Available resources
Inventory
Shipping costs

5. The factors affecting international pricing decisions (cont.)
Market factors:
Consumers perceptions, expectations and ability to pay
Need for product adaptation, market servicing
Market structure, distribution channels discounting pressures
Market growth, demand elasticities
Need for credit
Competition objectives, strategies and strengths

6. The factors affecting international pricing decisions (cont.)
Environmental factors:
Government influences and constraints
Currency fluctuations
Business cycle stage, level of inflation
Use of non-money payment and leasing

7. The factors affecting international pricing decisions (cont.)

8. The factors affecting international pricing decisions (cont.)
Specific export costs:
Additional freight handling costs
Last minute product modifications
Packaging and labelling
Documentation requirements
Insurance
Delays in custom clearance
Vaguely worded contracts or agreements

9. The factors affecting international pricing decisions (cont.)
Market factors:
Consumer response
Distinctiveness of product
Level of perceived quality
Awareness of substitutes
Ease of making comparisons
Price as a proportion of total expenditure
Perceived benefit
Use of product in conjunction with another
Shared costs of purchase
Perishability
Competitors’ response
Commitment to markets and products
Resources available
Internal cost structures
Customer/distribution chain loyalty

10. Developing pricing strategies
Are you taking a:
cost oriented approach?
market oriented approach
competition oriented approach?
Standardization
Ethnocentric
Adaption
Polycentric
Invention
Geocentric
Standardization pricing sets a price for the product as it leaves the factory irrespective of its final distinction. Customers are expected to pay transportation and import duties themselves.
Adaptation pricing allows each local subsidiary or partner to set a price which is considered to be most appropriate for local conditions, and no attempt is made to coordinate prices from country to country.
Invention pricing involves neither fixing a single price, nor allowing local subsidiaries total freedom for setting prices either, but attempts to take the best of both approaches.

11. Developing pricing strategies (cont.)
The objectives of pricing:
Rate of return
Market stabilization
Demand-led pricing
Competition-led pricing
To reflect product differentiation
Market skimming
Market penetration
Early cash recovery
Prevent new entry

12. Developing pricing strategies (cont.)
Setting a price:
Determine export market potential
Estimate the price range and target price
Calculate sales potential at the target price
Evaluate tariff and non-tariff barriers
Select suitable pricing strategy in line with company objectives
Consider likely competitor response
Select pricing tactics, set distributor and end-user prices
Monitor performance and take necessary corrective action

13. Problems of pricing and financing international transactions
Multi-national pricing (e.g. cost of selling (e.g. VAT) may be different in each country)
Managing foreign currency / floating exchange rates
Obtaining payment in high risk markets (e.g. selling products to countries where there is a risk of non-payment, e.g. some African countries.)
Administrative problems of cross-border goods transfer (e.g. problems of bureaucracy and delays)

14. Problems in multi-national pricing
What is grey marketing?
The practice of buying a product in one market and selling in other markets in order to benefit from the prevailing price differential
Grey marketing occurs when trademarked goods are sold through channels of distribution that have not been given authority to sell the goods by the trademark holder. Coca-Cola had to bring forward (inform) the European launched of Vanilla Coke after it found the product was already being sold in the UK by a distributor who had imported it directly from Canada, where it had been launched several months previously.

15. Problems in multi-national pricing (cont.)
e.g. $15 each in Country A
e.g. $20 each in Country C
e.g. $10 each in Country C
Parallel importing. When the product is priced in the home market where it is produced lower (e.g. $15 each in Country A) than the export market lower (e.g. $20 each in Country C). The grey marketer in the export market will parallel import directly from the home market rather than source from within their own country; for example, there is a strong parallel import trade in Levis jeans between the US and Europe.
Re-importing. When the product is priced cheaper in an export market (e.g. $10 each in Country C) than in the home market (e.g. $15 each in Country A), where it was produced; re-importation in this case can be profitable to the grey marketer.
Lateral importing. When there is a price difference between export markets, products are sold from one country to another through unauthorized channels.

16. Problems in multi-national pricing (cont.)
Seek government intervention or legal protection
Refusal to issue warranties in certain markets
Buying out grey marketer
Price coordination strategies
Economic measures
Centralization
Formalization
Informal coordination

17. Problems in multi-national pricing (cont.)
Currency of pricing
Benefits of quoting in a foreign currency
provide access to finance abroad
At lower interest rates (e.g. if the interest rate of foreign currency is low)
good currency management
Leading to potential of gaining additional profit (e.g. to quote price in a stable (or appreciating) currency such s UD dollar)
responding to condition of contract (e.g. agreement between importer and exporter)
customers prefer quotes in own currency
Allowing competitive comparison (e.g. in order to know exactly what the eventual price will be.)

18. Should prices be raised/lowered as exchange rates fluctuate?
When the domestic currency is weak:
Compete on price (as your products are perceived cheaper)
Introduce new products with additional features (e.g. via product innovation)
Source / manufacture in the domestic country (e.g. in order to lower production costs)
Fully exploit export opportunities
Obtain payment in cash
Minimise overseas borrowing
Invoice in domestic currency
Use full cost approach for existing markets / marginal costs for new, more competitive, markets
Repatriate foreign earned income quickly (e.g. to avoid further devaluation in domestic currency)
Reduce expenditure and buy services (advertising, transport, etc.) locally

19. Should prices be raised/lowered as exchange rates fluctuate?
When the domestic currency is strong:
Compete on non-price factors (e.g. provide good quality, delivery, service)
Improve productivity and reduce costs
Prioritise strong currency countries for exports
Use counter-trade (international trade by exchange of goods rather than by currency purchase.) for weak currency countries
Reduce profit margins and use marginal costs for pricing
Keep the foreign earned income in the local country (e.g. invest in local country)
Maximise expenditures in local country currency
Buy services abroad in local currencies (as it is cheaper than home country)
Borrow money for expansion in local markets
Invoice foreign customers in their own currency (as their currency is weak and they need to pay more)

20. Problems in minimizing the risk of non-payment of high-risk countries
Countertrade:
Barter (This is single exchange of goods with no direct use of money)
Compensation trading (This involves an agreement in which payment for good is accepted in a combination of goods and cash)
Counter-purchase (This involves the negotiation of two contracts. In the first, the international marketer agrees to sell the product at an established price in local currency. In the second, simultaneous contract, the international firm buys goods or service for an equivalent or proportionate cash payment from another local supplier.)
Offset (This is similar to counter-purchase, but in this case national government cooperate to support the deal. For example, Boeing sod AWACS aircraft to the British Ministry of Defence on the basis that the purchase price would be spent on British goods )
Switch deals (This involves a third party (usually a merchant house), which specializes in barter trading. E.g. disposing of the low-quality goods from an western country to exchange for other products that are suitable for the original western country.)
Cooperation agreements (These can be cover buyback deal, pay-as-you-earn deals or a range of other beneficial arrangement made between two parties.)
Countertrade is an international trade by exchange of goods rather than by currency purchase.

21. Problems in minimizing the risk of non-payment of high-risk countries (cont.)
Advantages of countertrade:
New markets
Sell off surplus or poor quality products
Strengthens political ties
Entry to high risk areas
Circumvent (find a way around an obstacle) government restrictions

22. Problems in minimizing the risk of non-payment of high-risk countries (cont.)
Disadvantages and limitations of countertrade:
Lack of flexibility
Exchange products difficult to sell
Difficulties in locating / organizing counter-trade products
No guide market prices
Difficult profit evaluation
May create new competition