I n t e r n a t i o n a l M a r k e t i n g
I n t e r n a t i o n a l M a r k e t i n g
Pricing
for
International Markets
Chapter 18
1 4 t h E d i t i o n P h i l i p R. C a t e o r a M a r y C. G i l l y J o h n L . G r a h a m
McGraw-Hill/Irwin
International Marketing
What Should You Learn?
What Should You Learn?
•
Components of pricing as competitive tools in
international marketing
•
The pricing pitfalls directly related to international
marketing
•
How to control pricing in parallel imports or gray
markets
•
Price escalation and how to minimize its effect
18-3
Global Perspective –
the Price War
Global Perspective –
the Price War
•
Setting the right price for a product or service
– Key to success or failure
•
An offering’s price
– Must reflect the quality and value the consumer perceives in the product
•
Globalization of world markets
– Intensifies competition among multinational and home-based companies
•
The marketing manager’s responsibility
Pricing Policy
Pricing Objectives
Pricing Policy
Pricing Objectives
•
Pricing as an active instrument of accomplishing
marketing objectives
– The company uses price to achieve a specific objective
•
Pricing as a static element in a business
decision
– Exports only excess inventory
– Places a low priority on foreign business
18-5
Pricing Policy
Parallel Imports
Pricing Policy
Parallel Imports
•
Parallel imports
– Develop when importers buy products from distributors in one
country and sell them in another to distributors who are not part of the manufacturer’s regular distribution system
•
Occur whenever price differences are greater
than cost of transportation between two markets
•
Major problem for pharmaceutical companies
•
Exclusive distribution
How Gray-Market Goods
End Up in U.S. Stores
How Gray-Market Goods
End Up in U.S. Stores
18-7
Approaches to International Pricing
Approaches to International Pricing
•
Company policy relates to net price received
– Control over end prices
– Control over net prices
•
Cost and market considerations
•
Employ pricing as part of strategic mix
•
Variable-cost pricing
– Firm is concerned only with the marginal or incremental cost of producing goods to be sold in overseas markets
•
Full-cost pricing
– Companies insist that no unit of a similar product is different from any other unit in terms of cost
– Each unit must bear full share of the total fixed and variable cost
Full-Cost Versus
Variable-Cost Pricing
Full-Cost Versus
18-9
Skimming Versus
Penetration Pricing
Skimming Versus
Penetration Pricing
•
Skimming
– Used by a company when the objective is to reach a segment of the market that is relatively price insensitive
– Market is willing to pay a premium price for the value received
•
Penetration pricing policy
Price Escalation
Price Escalation
•
Costs of exporting
– Price escalation
•
Taxes, tariffs, and administrative costs
– Taxes include tariffs
– Tariff – fee charged when goods are brought into a country from another country
– Administrative costs
► Include export and import licenses ► Other documents
► Physical arrangements for getting the product from port of entry to the
18-11
Price Escalation
Price Escalation
•
Inflation
– In countries with rapid inflation or exchange variation, the selling price must be related to the cost of goods sold and the cost of replacing the items
•
Deflation
– In a deflationary market, it is essential for a company to keep prices low and raise brand value to win the trust of consumers
•
Exchange rate fluctuations
– No one is quite sure of the future value of currency
Price Escalation
Price Escalation
•
Varying currency values
– Changing values of a country’s currency relative to other currencies
– Cost-plus pricing
•
Middleman and transportation costs
– Channel diversity
18-13
Sample Causes and Effects
of Price Escalation
Approaches to Lessening
Price Escalation
Approaches to Lessening
Price Escalation
•
Lowering cost of goods
– Manufacturing in a third country
– Eliminating costly functional features
– Lowering overall product quality
•
Lowering tariffs
– Reclassifying products into a different, and lower customs classification
– Modify product to qualify for a lower tariff rate within classification
18-15
Approaches to Lessening
Price Escalation
Approaches to Lessening
Price Escalation
•
Lowering distribution costs
– Shorter channels
– Reducing or eliminating middlemen
•
Using foreign trade zones to lessen price
escalation
– Establish free trade zones (FTZs) or free ports
► Tax-free enclave not considered part of country ► Postpones payment of duties and tariffs
•
Dumping
– Use of marginal (variable) cost pricing
How Are Foreign
Trade Zones Used?
How Are Foreign
Trade Zones Used?
18-17
Leasing in International Markets
Leasing in International Markets
•
Selling technique that alleviates high prices and
capital shortages
•
Opens the door to a large segment of nominally
financed foreign firms
– Firms can be sold on a lease option but might be unable to buy for cash
•
Can ease the problems of selling new,
experimental equipment
Leasing in International Markets
Leasing in International Markets
•
Helps guarantee better maintenance and service
on overseas equipment
•
Helps to sell other companies in that country
•
Revenue tends to be more stable over a period
of time than direct sales
•
Leasing disadvantages
– Inflation may lead to heavy losses at end of contract period
18-19
Countertrade as a Pricing Tool
Countertrade as a Pricing Tool
•
A tool every international marketer must be
ready to employ
– Often gives company a competitive advantage
•
Russia and PepsiCo
– Trading vodka and wine for soft drinks
Countertrade as a Pricing Tool
Countertrade as a Pricing Tool
•
Types of countertrade
– Barter
– Compensation deals
– Counterpurchase or offset trade
18-21
Countertrade as a Pricing Tool
Countertrade as a Pricing Tool
•
Problems of countertrading
– Determining the value of and potential demand for the goods offered
– Barter houses
•
The Internet and countertrading
– Electronic trade dollars
– Universal Currency/IRTA
•
Proactive countertrade strategy
– Included as part of an overall market strategy
Transfer Pricing Strategy
Transfer Pricing Strategy
•
Prices of goods transferred from a company’s
operations or sales units in one country to its
units elsewhere
– May be adjusted to enhance the ultimate profit of company
•
Benefits
– Lowering duty costs
– Reducing income taxes in high-tax countries
18-23
Transfer Pricing Strategy
Transfer Pricing Strategy
•
Objectives
– Maximizing profits for corporation
– Facilitating parent-company control
– Providing all levels of management control over profitability
•
Arrangements for pricing goods for
intracompany transfer
– Sales at the local manufacturing cost plus a standard markup
– Sales at the cost of the most efficient producer in the company plus a standard markup
– Sales at negotiated prices
Price Quotations
Price Quotations
•
May include specific elements affecting the price
– Credit
– Sales terms
– Transportation
– Currency
– Type of documentation required
18-25
Administered Pricing
Administered Pricing
•
Cartels
– Exist when various companies producing similar products or services work together
► To control markets for the types of goods and services they produce – May use formal agreements
► To set prices
► Establish levels of production and sales for participating countries ► Allocate market territories
► Redistribute profits
► May take over entire selling function – Examples
► OPEC
Administered Pricing
Administered Pricing
•
Government-influenced pricing
– Establishes margins
– Sets prices and floors or ceilings
– Restricts price changes
– Competes in the market
– Grants subsidies
18-27
Summary
Summary
•
Pricing is one of the most complicated decisions
areas encountered by international marketers
•
International marketers must take many factors
into account
– For each country
– For each market within a country
•
Market prices at consumer level are much more
difficult to control in international than in
Summary
Summary
•
Controlling costs that lead to price escalation when
exporting products is:
– One of the most challenging pricing tasks facing the exporter
•
Countertrading is an important tool in pricing policy
•
Pricing in the international marketplace
– Requires a combination of intimate knowledge of market costs and regulations
– An awareness of possible countertrade deals, – Infinite patience for detail
