Pricing for

International Markets

Group CHOCOPIE

INTERNATIONAL MARKETING
Lecturer: Mai Quynh Anh
 Contents
1. Policy
2. Approaches to International Pricing
INTERMATIONAL

3. Price Escalation
MARKETING

4. Sample Effects of Price Escalation

5. Approaches to Reducing Price Escalation
6. Leasing in International Markets
7. Countertrade as a Pricing Tool
8. Price Quotations
9. Administered Pricing
10. Getting Paid: Foreign Commercial Transactions
PRICING IN INTERNATIONAL MARKETING

"Setting and changing prices are key

strategic marketing decisions. Prices both
set values and communicate in international
markets. Price and terms of sale cannot be
based on domestic criteria alone"
(Philip R. Cateora, 2011).

 Pricing Objectives

Pricing as an active instrument of accomplishing

PRICING POLICY

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
Views its export sales as passive contributions to
sales volume
 Parallel Imports
Because of the different prices possible in different country markets, a product sold in one
country may be exported to another and undercut the prices charged in that country.
PRICING POLICY

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

The possibility of a Exclusive

Case
parallel market distribution

Occur whenever price
differences are greater
than cost of transportation
between two markets
Nike’s Air Max Metallic trainers,
which are priced at £120 ($196) in
sports shops in United States,
could be purchased at £50 ($80), in
Tesco - one of Britain’s leading
supermarket chains
To maintain the exclusive-
quality image of a product.
Can create a favorable
condition for parallel
importing.
 How Gray-Market Goods End
Up in U.S. Stores
PRICING POLICY
INTERNATIONAL PRICING
APPROACHES TO
Full-Cost Versus Variable-Cost Pricing
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.
 Skimming Skimming
INTERNATIONAL PRICING

versus Used by a company when the objective is to

APPROACHES TO

reach a segment of the market that is relatively

Penetration price-insensitive.

Pricing Market is willing to pay a premium price for the

value received.

Penetration pricing policy

Used to stimulate market and sales growth by

deliberately offering products at low prices.
INTERNATIONAL PRICING Starbucks - Pricing Strategy

Premium pricing Value-based Product line

strategy pricing strategy pricing strategy
APPROACHES TO

A strategy where Value-based pricing is the Product line pricing is a

businesses price a product method of setting a price product pricing strategy,
higher than the market by which a company used when a company has
average to strengthen calculates and tries to earn more than one product in a
perceived quality and the differentiated worth of product line.
establish a luxury brand its product for a particular
image. customer segment when
compared to its competitor.
 Premium strategy in Starbucks
China's per capita income, at around $7,200, is roughly five and a half times that of the United
INTERNATIONAL PRICING

States. However, a grande latte costs about $4.80 at a Starbucks in Beijing, which is a dollar
more than it does in the United States.
APPROACHES TO

In China, Starbucks charge 20%

higher prices than in other parts
of the world.

In China, Starbucks boosted

prices higher, positioning the
brand as a status symbol for the
rapidly growing Chinese middle
and upper classes.
 Value-based pricing strategy in Starbucks
For the most part, Starbucks is a master of employing value based pricing to maximize
profits, and they use research and customer analysis to formulate targeted price increases
INTERNATIONAL PRICING

that capture the greatest amount consumers are willing to pay without driving them off.
APPROACHES TO

Product line
pricing strategy
in Starbucks
Starbuck uses the product-line pricing
for every products. Starbuck often
charge different prices between each
size of each coffee. In China, tea line
product will be priced differently by
Starbucks compared to coffee
categories.
 Price Escalation
Price escalation refers to the added costs incurred as a result
of exporting products from one country to another
PRICE ESCALATION

STARBUCKS CASE:
Starbucks imports coffee from its suppliers around the world
into China and they need to pay import tax.
Tax payment can vary between 10 to 30 percent.

Affect the price of Starbucks products and affect Starbucks

operations.
 Taxes, Tariffs, and Administrative Costs
These costs result in higher prices, which are
generally passed on to the buyer of the product.
PRICE ESCALATION

A tariff

Costs of Exporting is a special form of taxation, is a fee charged

when goods are brought into a country from
another country.
The term relates to situations in which
The purpose of it is to protect a market or to
ultimate prices are raised by shipping
increase government revenue.
costs, insurance, packing, tariffs,
longer channels of distribution, larger
middlemen margins, special taxes,
Administrative Costs
administrative costs, and exchange
rate fluctuations Mandatory taxes for conducting business in
foreign country
Taxes, Tariffs, and Administrative Costs
The price of starbuck products sold in China is 20% higher than home
country
Doesn't meet Starbuck's turnover policy. The price changes keep
happening.

PRICE ESCALATION
Starbucks worked with coffee farmers in many parts of China and tried to
help them meet the company's standards.
Give Starbucks a huge competitive advantage
 Inflation Deflation
Inflation causes consumer prices Results in ever-decreasing prices,
to escalate and the consumer is creating a positive result for
PRICE ESCALATION

faced with rising prices that consumers

eventually exclude many
consumers from the market Both put pressure to lower costs on
everyone in the supply chain
 Exchange Rate Fluctuations
The increase or decrease in the value of currency as STARBUCKS CASE
against the other currency at International level
$2.75 at U.S Starbucks outlets
PRICE ESCALATION

No one is quite sure of the future value of currency

Transactions are increasingly being written in terms HIGHER
of the vendor companys national currency
THAN

Varying Currency Values

Changing values of a countrys
currency relative to other currencies
Cost-plus pricing
 Middleman and Transportation Costs
Longer channel length, performance of marketing functions and higher
PRICE ESCALATION

margins may make it necessary to increase price

Channel diversity
Underdeveloped marketing and distribution channel infrastructures

STARBUCKS CASE :
Starbucks’ supply chain is vertically integrated
Starbucks distributes coffee in two phases
Minimize costs
Guarantee the availability of the product
PRICE ESCALATION Sample Effects of Price Escalation

All figures in U.S. dollars; CIF = cost, insurance, and freight; n.a. = not applicable.
The exhibit assumes that all domestic transportation costs are absorbed by the middleman.
Transportation, tariffs, and middleman margins vary from country to country, but for the purposes of
comparison, only a few of the possible variations are shown.
 WAYS TO BETTER CONTROL PRICE IN INTERNATIONAL MARKET
APPROACHES TO REDUCING PRICE

Lowering Manufacturing in a third country

cost of goods Eliminating costly functional features

Lowering overall product quality
ESCALATION

Case of Starbucks
Control their production process from start to finish
Roasting its own coffee in its roasting facilities
Bake their own pastries and deliver to their stores in
their own vehicles
Purchase large quantities of coffee at a discount by
negotiating a bulk price
APPROACHES TO REDUCING PRICE

Reclassified into a different, and lower, customs

classification

Lowering Modify a product to qualify for a lower tariff rate

within a tariff classification.

Tariffs Requiring some assembly, further processing

Repackaging
ESCALATION

Case of Starbucks
They pay income tax in places with low tax rates and
evade taxes in places with high tax rates.
Parent companies are located where tax rates are low
Subsidiaries in places where high tax rates and all pre-
tax deductions are as large and as high as possible
The loss of subsidiaries
=> Starbucks avoids the capital gains taxes
 LOWERING DISTRIBUTION COSTS
APPROACHES TO REDUCING PRICE

Shorter channels
Reducing or eliminating the middleman
Especially where value-added taxes are imposed

USING FOREIGN TRADE ZONES TO LESSEN PRICE ESCALATION

ESCALATION

Imported goods stored or processed without imposing tariffs or duties until items leave FTZ
areas and are imported into the host country
FTZ's can lower costs through:
Lower duties imposed
Lower labor costs in importing country
Lower ocean transportation costs with unassembled goods (weight and volume are less)
Using local materials in final assembly

DUMPING
Use of marginal (variable) cost pricing WTO has set up penalties for dumping through:
If the products are sold below their cost of production Countervailing duties
Selling goods in a foreign market below the price of the Minimum Access Volume (MAV)
same goods in the home market.
INTERNATIONAL MARKETS
Leasing in International Markets
International leasing is a transaction where the lease itself crosses a border,
where the lessor and lessee are in different countries.
LEASING IN

ADVANTAGES DISAVANTAGES

Opens the door to a large Lead to heavy losses toward

segment of nominally financed the end of the contract period
foreign firms Spiraling inflation is most
Ease the problems of selling likely to occur
new, experimental equipment
Guarantee better maintenance
and service
 Countertrade
as a Pricing Tool
COUNTERTRADE AS A
PRICING TOOL

A company sells a product in another

country and receives some form of
compensation other than strictly money

Be aware of which markets will likely

require countertrades

Enhance a marketer's competitive

position
 Problems of
Countertrading
COUNTERTRADE AS A
PRICING TOOL
Determining the value of and potential demand
for the goods offered as payment
The seller has been unprepared to negotiate
The primary outside source of aid for
companies beset by the uncertainty of a
countertrade
The Internet and
Countertrading
The most important venue
Internet auction sites, Internet exchanges
To complement and expand the offline barter
exchanges
Electronic trade dollar would replace national
currencies in international trade transactions
 Price Quotations
In quoting a price, a contract
PRICE QUOTATIONS

may include specific elements

affecting the price:

Credit
Sales terms
Transportation
Currency
Type of documentation required

The price quotation and contract

should define quantity and quality.
 Administered Pricing
Administered pricing is an attempt to establish prices for an
entire market.
ADMINISTERED PRICING

The price be arranged through:

The cooperation of competitors; through national, state, or
local governments; or by international agreement.
 Cartels
ADMINISTERED PRICING

A cartel exists when various companies producing similar products or

services work together to control markets for the types of goods and
services they produce.

Government-Influenced Pricing
Control prices, governments may establish margins, set prices and floors or
ceilings, restrict price changes, compete in the market, grant subsidies, and
act as a purchasing or selling monopoly.
FOREIGN COMMERCIAL PAYMENTS

Getting Paid : Foreign

Commercial Payments
GETTING PAID

The five basic

payment arrangements:

Letters of Credit
Bills of Exchange
Cash in Advance
Open Accounts
Forfaiting
 THANKS FOR YOUR ATTENTION!
INTERMATIONAL MARKETING

_CHOCOPIE GROUP_