GLOBALMARKETINGMIX:PRICE

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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 Ps (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 Cs:
Company (costs, company goals)
Customers (price sensitivity, segments, consumer preferences)
Competition (market structure and intensity of competition)
Channels (of distribution)
The 4 Cs can explain why both business and consumer products
may vary in price depending on where they are sold. The chart
below is an example of how products can be priced differently by
market.
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Source: various issues of the Weekend Journal of the Wall Street

Journal (Arbitrage)
It is interesting to see how even in the European market, where
geographic location is close, prices can still vary a great deal.
Below, I will discuss what I feel are the most important
international pricing issues for a marketer to understand.
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
Exchange rates represent how much one form of currency is
worth in terms of another. Political and economic conditions
cause exchange rates to constantly fluctuate. With these rates so
unstable, setting a price strategy that can combat these changes
can be difficult. The two main pricing issues for managers are
how much of the exchange rate gain or loss should be transferred
to customers (the pass-through issue), and deciding what
currency price quotes are given in.
Transfer Pricing
Another challenge facing organizations operating globally is how
they handle sales transactions between related parts of the same
company. Transfer pricing are the prices charged for transactions
involving the trade of raw materials, components, finished goods,
or services. Transfer pricing decisions involve the need to balance
the interests of a variety of stakeholders including: the parent
company, local country managers, host governments, domestic
governments, and joint-venture partners. Some of the factors
that influence transfer pricing decisions are the following: tax
regimes, local market conditions, market imperfections, joint
venture partners and the morale of local country managers.
There are two major transfer pricing strategies, market-based
transfer pricing and nonmarket-based pricing. To read much more
about transfer pricing, click here.
Anti-dumping Regulations
Dumping occurs when imports are sold at an unfair price.
Recently the removal of trade barriers (tariffs, quotas) has caused
countries to switch to non-tariff barriers such as anti-dumping
laws in order to protect their local industries. It is important for

multinational corporations to take into account anti-dumping laws

when they determine their global pricing policy. If firms price too
aggressively, this may cause anti-dumping measures that will
hurt their competitive position. It is important to monitor how
anti-dumping laws affect similar companies in your industry.
Price Coordination
The last issue that affects pricing in the global environment is
price coordination. Price coordination is the relationship that
exists between prices charged in different countries. Although the
laws of economics indicate that prices should vary across region
so that overall profits are maximized, reality is just not that
simple. In the majority of instances, markets cannot be separated
perfectly, and too much price differentiation creates gray
markets. So, when deciding on how to coordinate your pricing
strategy, consider these factors:
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
Countertrade
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: