PRICING FOR

INTERNATIONAL MARKETS

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INTRODUCTION
Global pricing is one of the most critical and complex issues that global firms face so it can give a break or a boost to company’s revenue. Importance: Price is the only marketing mix that generates revenue all other entail costs. Local pricing v/s Global pricing – Image consistency issue Lack of the coordination in the global market will give rise to gray market or parallel trade situation 5 C’s are main drivers of global pricing strategies of any company operating internationally : COMPANY, COST, CUSTOMER, COMPETITION and CHANNELS

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Global Pricing

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4 .COMPANY  Growth Maximization/revenue maximization  Market penetration  Projection of an image Companies objectives and goals are different in different market . For example New Balance. the US based shoe maker sells its shoes in France as haute couture rather than athletic shoes and they price it at almost double of the price in US.

 Two costs are there Fixed costs. 5 .  Costs are very prominent in pricing decision of a firm because pricing is done to cover the cost involved. raw material etc. Variable costs  Export Pricing policies: Cost-Plus Pricing: adds international costs and a markup to the domestic manufacturing cost.COSTS Costs are different in different markets because of various reasons like labor. Dynamic Incremental Pricing: Only incremental costs should be recuperated.

Consumer’s role in international pricing is derived by these reasons:  Buying power  Habits & Spending patterns  Availability of substitutes Option to tackle customers issue:  Downsizing  Sell older version at low prices Example: Proctor & Gamble downsized the packet size of Ariel in Egypt thereby lowering cash outlay for ordinary consumers. consumer willingness to pay sets a ceiling to the price.CUSTOMER If costs set the floor for pricing . 6 .

COMPETITION Competition plays an important role in pricing because we have different kinds of competition in different market: Number of competitors: Monopoly. state owned or private owned Position of company in the competition: Price leaders or price takers 7 . Perfect competition Nature of competition: Global or local players.

CHANNELS Distribution channels determine pricing in different ways depending upon: Length of channels:  Producer to consumer in how many steps  Balance of power between manufacturer and retailers  Unauthorized distribution channels in the grey markets Example: US and Germany have direct marketers . supermarkets and specialty retails for personal computers where as in Britain prices are 50 % higher than in Germany with market dominated by Dixons . a retail chain that charges high margins. 8 .

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 Charge what consumers in each country will pay. Possible approaches include:  Charge a uniform price all around the world.  Use a standard markup of costs everywhere.GLOBAL PRICING STRATEGIES Companies face many problems in setting their international prices. 10 . International prices tend to be higher than domestic prices because of price escalation.

Pricing Objectives Profit-Oriented Pricing Objectives Sales-Oriented Pricing Objectives Status Quo Pricing Objectives 11 .

marketers must select a price that is not too high or too low. To earn a profit. a price that equals the perceived value to target consumers 12 .IMPORTANCE OF PRICE Revenue = Unit Price X Number of Units Sold  Revenue pays for every activity.  What’s left over is Profit.

PROFIT-ORIENTED PRICING OBJECTIVES Profit-Oriented Pricing Objectives Profit Maximization Satisfactory Profits Target Return on Investment 13 .

SALES-ORIENTED PRICING OBJECTIVES Sales-Oriented Pricing Objectives Market Share Sales Maximization 14 .

COST DETERMINANT OF PRICE  Markup pricing  Key Stoning Methods Used to Set Prices  Profit Maximization Pricing  Break-Even Pricing 15 .

or doubling the cost. Keystoning The practice of marking up prices by 100%. 16 .MARKUP PRICING Markup Pricing The cost of buying the product from the producer plus amounts for profit and for expenses not otherwise accounted for.

Marginal Revenue 17 .PROFIT MAXIMIZATION Profit Maximization A method of setting prices that occurs when marginal revenue equals marginal cost. or the change in total revenue with a one-unit change in output. The extra revenue associated with selling an extra unit of output.

SPECIAL PRICING TACTICS Single-Price Tactic Flexible Pricing All goods offered at the same price Different customers pay different price Leader Pricing Sell product at near or below cost Bait Pricing Lure customers through false or misleading price advertising Price Bundling Combining two or more products in a single package Two separate charges to consume a single good 18 Two-Part Pricing .

EXPORT PRICING  Export Cost Factors  Export Pricing Strategy  Export Pricing Methods of Manufacturers Export Cost Factors  Product modification cost    Promotion cost Packaging cost After-sales service cost 19 .

EXPORT PRICING STRATEGY High pricing strategy  Unique or new products  High profit margin  Attracts competition  Higher price at the beginning and lower later price Low pricing strategy  To penetrate foreign markets  To increase market share  To dispose of excess or obsolete inventory  To discourage new competition  Cannot be a long-term strategy 20 .

Moderate pricing strategy  Adequate profit margin  Can meet competition and maintain market shares  Should be long-term strategy 21 .

PRICING PRACTICES Higher Home Market Prices  Lower labor or raw material cost in the international market  Strong local competition in the international market  Lower buying power of host-country consumers Lower Home Market Prices Justified by:  No cost advantages to producing overseas  Few or no challenges from international competition  Limited market potential  International buyers can afford higher prices 22 .

manufacturers should convert cost-plus pricing to marginal cost pricing method in determining an export price 23 .S.EXPORT PRICING METHODS OF MANUFACTURER Marginal Cost Pricing Method  Assumes that indirect fixed costs are fully recovered from domestic sales  Cost for manufacturing additional unit for export and exporting cost  Includes direct cost of material. labor only General & Administrative expenses not included Cost-plus pricing method  Adding exporting costs to domestic production cost  Include G & A expenses  Too high to compete in international market  U.

INTERNATIONAL PRICING FRAMEWORK Firm-level factors Environmental factors Market factors Product factors Pricing strategies Other elements Terms Firm performance 24 .

FACTORS AFFECTING INTERNATIONAL PRICING Inflation Exchange Rate Fluctuations Parallel Imports Price Escalation 25 .

Inflation  Eliminates consumer’s purchasing power  Delayed payment will erode profit Strategy  Careful price quotations and supply contracts  Increase brand value  Retain and win trust of customers FACTORS AFFECTING INTERNATIONAL PRICING Exchange Rate Fluctuations Strategy  Review entire operation system  Adjust cost structure  Increase brand value  Check mode of operation in foreign markets 26 .

GST  Operating costs   Additional transportation costs  Two distributors: high lot and low lot  Insurance. the final foreign retail price will often be much higher than the domestic retail price. costs 27 .  A direct result of products moving across borders  Manufacturers Importers Distributor  Jobber  Consumer  Import duty .Price Escalation To cover the incremental costs (shipping. This is known as price escalation. packaging. insurance. tariffs. country of origin. other admin. etc). VAT.

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 Reduce income tax regions due to low transfer price. 29 .TRANSFER PRICING Price of goods transferred between a company’s units in different countries. Benefits of transfer price manipulation:  Lower tariffs due to low transfer price.

Transfer Pricing Home Country Foreign Country Taxes Taxes Tariffs 30 .

parent makes profit Cost Plus profits split between parent and subsidiary 31 . subsidiary makes profit Arms length charged the same price as any other buyer.BASES FOR TRANSFER PRICING At cost set at a the level of production cost.

ANTI DUMPING REGULATION  Dumping: imports are being sold at an “unfair”price  Protectionism To minimize risk exposure to antidumping actions. exporters might pursue any of these strategies: Trading-up (low-value to high-value products) Service Enhancement: differentiate your product by adding support services to the core product Distribution and Communication: strategic alliances Set up units in foreign country 32 .

Microsoft sets prices that differ by not more than 5% between countries Amount of product differentiation: less differentiation . the larger the need for price coordination. In Europe. 33 .PRICE COORDINATION When developing a global pricing strategy. For ex. one of the thorniest issues is how much coordination should exist between prices charged in different countries Nature of customers: With global customers price coordination is must.

including pricing.Nature of Channels: distribution channels can be viewed as intermediate customers. Nature of competition: Global competition demands a cohesive strategic approach for the entire marketing mix strategy. Government regulation 34 .

P R E S E N T E D B Y:  C H E TA N ( F B 11 0 7 2 )  G U R P R E E T ( F B 11 0 7 4 )  K A R T I K ( F B 11 0 7 9 )  SAURAB 35 .