INTERNATIONAL

PRICING
B Y V I J YATA
A S S I S TA N T P R O F E S S O R ( D E P T T. O F M B A )
RANCHI WOMEN’S COLLEGE ,RANCHI UNIVERSITY
INTRODUCTION

Of the 4Ps of the marketing mix, pricing receives the least attention
but success in international marketing depends on right pricing of the
product.
OBJECTIVE OF PRICING IN
INTERNATIONAL MARKETING
The main objective of pricing in overseas marketing should be to meet the customer demand in
competitive situation in such a way that sales and profit are maximised. Additionally there can be
these following objectives too specific to market and product :

• PENETRATION- quoting a low price to divert demand or to generate new demand

• SKIMMING – to charge premium price after having a strong foothold in market

• HOLDING MARKET SHARE – to react with price adjustments with competitors and
exchange rate fluctuations( single country market )

• ENHANCING SHARE – out-pricing competitor either by enhancing cost efficiency or by

quoting price based on direct costs and not on total costs
FACTORS AFFECTING PRICING
DECISIONS
• Cost of the Product
• Competition in the foreign market
• Demand for the product in the foreign market
• Exchange rate fluctuations
• International transportation cost
• Governing trade policies and price regulations
• Varying inflation and interest rates in different countries
• Micro and Macro marketing environments of the overseas as well as domestic
market
PRICING PROCESS
Cost Analysis
Cost of product Cost of distribution and marketing

Marketing Analysis
Market size, segment and competition Price levels and price categories

Determination of price limits

Lower limits : cost limit Upper Limits : Market limits

Determination of Pricing Objectives

Calculation of Price Structure

Price Quotation and term of sale

ELEMENTS OF COST IN EXPORT
1. Direct Cost i.e Material , labor, other direct charges
2. Indirect Cost + Factory overhead = Factory Cost
3. General and Administrative expenses = Total Cost
4. Distribution and selling Expenses
5. Marketing Support cost = Total cost of Sale
6. Export packaging , marketing and labelling
7. Port/Dockyard/Airport handling charges
8. Documentation fees
9. Duties and taxes related to exporting
10.Importer’s, Wholesaler’s, Retailer’s and agent’s margin and mark-up
INTERNATIONAL PRICING METHODS
• Cost Plus Method
• Marginal Cost Pricing
• Differential Pricing
• Probe Pricing
• Penetration Pricing
• Skimming Pricing
• Competitive Pricing
• Transfer Pricing
COST PLUS METHOD
This implies charging the total costs plus profit. Here cost includes
all costs incurred in international trade like special packaging,
labelling, transportation , insurance , handling duties, taxes and levies
at different stages from the place of origin in the exporting country to
the foreign country , depending on terms of sale.
MARGINAL COST PRICING
In some circumstances , exporter may charge price to cover only
prime cost or just material cost-plus packing and other direct export
marketing cost.This is known as Marginal cost pricing method . It is
used to penetrate into foreign markets.
DIFFERNTIAL PRICING
Different prices are charged in different markets and different
segments based on competition and business environment varying
from country to country.

PROBE PRICING
A new entrant into a foreign market having little/no knowledge
of the market tries to probe the prospects of the market by quoting
price approximation relating to sales volume and value. Cost plus
profit and competitor’s prices are used for setting probe pricing
parameters.
PENETRATION PRICING
This price may yield marginal surplus over the total cost, or just
cover the full cost or in some cases even the total cost may not be
realised, but there are considerable chances of realising them in future.

SKIMMING PRICING
If the exporter has very strong foothold in foreign market with very
unique selling proposition and competitive advantage with favourable
positive image, higher prices may be charged to maximise gains.
COMPETITIVE PRICING
Adjustment and adaptations of pricing depending on the prices quoted by
competitors is know as competitive pricing.

TRANSFER PRICING
In international marketing, different units under the same corporate body
but located in different foreign countries, exchange goods and services
among themselves, the pricing of such exchanges is known as transfer
pricing. Transfer pricing takes taxes and duties leviable in the countries
concerned , their marketing conditions, paying potential of prospect clients ,
profit transfer rules and varying government rules into account.
TRANSFER PRICING METHODS
Alternative approaches to transfer prices are :
Transfer at cost :
This approach assumes that lower costs lead to better performance by the
subsidiary/affiliate and also helps in keeping duties low at the receiving end.
The transferring company do not have expectation of profit , rather the
receiving subsidiary is expected to generate profit by subsequent sale.
Transfer at cost plus overhead and margin
This approach assumes that profit must be shown at every stage of
movement through the channel. But this may result in pricing unrelated to
competition or demand condition in foreign market.
Transfer at price derived from end market prices
Under this method the price is derived from the competitive
foreign market prices. Here , there are chances of not meeting the
production cost by the seller or the margins may be too low but, it
helps in establishing name into a new market.
Transfer at “ Arm’s length price”
Using this method , the transfer price is the price that unaffiliated
parties in a similar transaction agreed on.
DUMPING
One of the challenging issues in international pricing is dumping. Dumping refers to
the practice of charging a very low price for imported goods to the detriment of the
same product manufactured domestically.
Dumping can be sporadic when the manufacturer with unsold inventories wants to
dispose it in other countries, at lower price. By means of Predatory dumping
company gains access to overseas market by selling initially at a loss to drive out
competition.
Reverse dumping is another form of dumping where overseas demand is less elastic
and will tolerate a higher price. In this case , dumping occurs in the home market.
Dumping can be legal or illegal based on the laws of the market in which it takes
place.
COUNTER-TRADE
Counter- trade is one of the practice in international pricing. Counter trade refers
to a government mandate to pay for goods and services with something other than
cash. Counter trade can be in the form of barter where one product is exchanged
for another (parallel barter), where two contracts or a set of parallel cash sales
agreement is effected.
The main reasons for spread of counter trade are :
i. It provides a trade financing alternative to the countries having international
debt and liquidity problems.
ii. It facilitates access to new market
iii. It fits well with the growth of bilateral trade agreements between governments.
GLOBAL PRICING ALTERNATIVES

Finns operating in international markets follow three

pricing approaches, predominantly:

Ethnocentric approach
Polycentric approach
Geocentric approach
ETHNOCENTRIC APPROACH

A company following an ethnocentric approach follows the same

pricing policy throughout the world. The importer of the product
will bear the freight and import duties. This approach is convenient
to adopt because there is no need to make any modifications to
price based on competitive or market conditions. The firm need not
put in efforts to collect information on these market conditions. But
by adopting tins approach, a firm might fail to make optimum
profits by not fixing the prices of the products based on regional
market conditions
POLYCENTRIC APPROACH

A firm following this approach allows its regional managers to fix

the product prices based on the circumstances in which they
operate. Tins approach might prove to be not so good, when the
disparity in product prices from one region to another is higher than
transportation costs and duties. When this condition prevails,
customers will buy the products in markets where they are available
at low price and ship them to where the prices are relatively high.
This will result in loss of revenue for the firm following this
approach.
GEOCENTRIC APPROACH

A firm adopting this approach takes a medium position between fixing

a single price worldwide and fixing different prices based on the
requirements of subsidiaries. One of the fundamental assumptions
underlying tins approach is that markets are unique, and specific
factors related to them have to be taken into account while making a
pricing decision. Also the approach takes into consideration tire price
coordination necessary at headquarters to deal with international
accounts and product arbitrage. This approach is the most practical of
all because it takes into consideration both global competition and
local rivalry in establishing prices.
THANK YOU
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