Chapterafmktpstu.weebly.com/uploads/5/4/2/4/5424898/im_18.pdf · McGraw-Hill/Irwin International Marketing, 13/e Chapter 18 Global Pricing for International Markets Modular: AfjalHossain

McGraw-Hill/Irwin International Marketing, 13/e

Chapter

18

Global Pricing for International

Markets

Modular:

Afjal Hossain

Lecturer, Department of Marketing

PSTU

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Chapter Learning Objectives

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

Countertrading and its place in international marketing

practices

The mechanics of price quotations

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Global Perspective

The Price War

• Setting the right price for a product or service can be the key to

success or failure

• An offering’s price must reflect the quality and value the consumer

perceives in the product

• As the globalization of world markets continues, competition

intensifies among multinational and home-based companies

• The marketing manager’s responsibility is to set and control the

actual price of goods in different markets in which different sets of

variables are to be found

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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

- Views its export sales as passive contributions to sales volume

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Pricing Policy

Parallel Imports

• Occurs whenever price differences are greater than the cost of

transportation between two markets

• Major problem for pharmaceutical companies

• Exclusive distribution

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.

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How Gray-Market Goods End up in U.S. Stores

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Approaches to International Pricing

Full-Cost versus Variable-Cost Pricing

• Variable-cost pricing – the 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 and that

each unit must bear its full share of the total fixed and variable cost

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Approaches to International Pricing

Skimming versus Penetration Pricing

• Skimming – a company uses when the objective is to reach a

segment of the market that is relatively price insensitive and thus

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.

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Price Escalation

• Costs of exporting

- Price escalation

• Taxes, tariffs, and administrative costs

- Tariff – fee charged when goods are brought into a country from

another country

- Administrative costs include export and import licenses, other

documents, and the physical arrangements for getting the product

from port of entry to the buyer’s location

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Price Escalation (continued)

• 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

- Transactions are increasingly being written in terms of the vendor

company’s national currency

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Price Escalation (continued)

• Varying currency values

- Changing values of a country’s currency relative to other currencies

- Cost-plus pricing

• Middleman and transportation costs

- Channel diversity

- Underdeveloped marketing and distribution channel infrastructures

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Sample Causes and Effects of Price Escalation

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Approaches to Lessening Price Escalation

• Lowering cost of goods

• Lowering tariffs

• Lowering distribution costs

• Using foreign trade zones to lessen price escalation

• Dumping

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Leasing in International Markets

• Opens the door to a large segment of nominally financed foreign

firms that can be sold on a lease option but might be unable to buy

for cash

• Can ease the problems of selling new, experimental equipment

because less risk is involved for the users

• 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 would be

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Countertrade as a Pricing Tool

• Why purchasers impose countertrade:

- To preserve hard currency

- To improve balance of trade

- To gain access to new markets

- To upgrade manufacturing capabilities

- To maintain prices of export goods

- To force reinvestment of proceeds from weapons deals

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Countertrade as a Pricing Tool (continued)

• Types of countertrade

- Barter

- Compensation deals

- Counter-purchase or offset trade

- Product buyback agreement

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Countertrade as a Pricing Tool (continued)

• 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

- Effective for exchange-poor countries

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Transfer Pricing Strategy

• Benefits:

- Lowering duty costs

- Reducing income taxes in high-tax countries

- Facilitating dividend repatriation when dividend repatriation is

curtailed by government policy

• Arrangements for pricing goods for intra-company 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

- Arm’s-length sales using the same prices as quoted to independent

customers

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Price Quotations

• May include specific elements affecting the price:

- Credit

- Sales terms

- Transportation

- Currency

- Type of documentation required

• Should define quantity and quality

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Administered Pricing

• Cartels

- Exists when various companies producing similar products or

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

services they produce

- Example: OPEC

• Government-influenced pricing

- Establish margins

- Set prices and floors or ceilings

- Restrict price changes

- Compete in the market

- Grant subsidies

- Act as a purchasing monopoly or selling monopoly

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Any Query?

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Thanks…for staying with me…