Pricing for IMPricing for IM

Pricing strategiesPricing strategiesPricing is a critical decision in Pricing is a critical decision in

international marketing management international marketing management because it is a major factor influencing a because it is a major factor influencing a firm’s total revenue from exports and its firm’s total revenue from exports and its profitability.profitability.

Pricing is influenced by: product cost, Pricing is influenced by: product cost, purchasing power of the consumer and purchasing power of the consumer and demand and supply force. demand and supply force.

Price and Non-price factorsPrice and Non-price factors

The Price factors:The Price factors: Role of costs, Demand and competitionRole of costs, Demand and competitionNon-price factors:Non-price factors: Brand image, frequency of purchase, Brand image, frequency of purchase,

association of price and quality, comprehensive association of price and quality, comprehensive knowledge of the product,before and after sales knowledge of the product,before and after sales service, continuity of supply,prompt delivery, service, continuity of supply,prompt delivery, settlement of claims and supply of complete settlement of claims and supply of complete range of products. range of products.

Pricing for Global MarketsPricing for Global Markets

Company Internal factors:Company Internal factors: ProfitabilityProfitability: understanding of cost and profit : understanding of cost and profit

variables.variables. Transportation costs:Transportation costs:Shipment of products over Shipment of products over

long distances, using all modes of long distances, using all modes of transportation, including rail, truck, air and transportation, including rail, truck, air and sea,depend on a considerable amount of sea,depend on a considerable amount of energy.energy.

The total cost of transportation has become an The total cost of transportation has become an issue of growing concern to global companies.issue of growing concern to global companies.

PricingPricing

High technology products are less sensitive to High technology products are less sensitive to transportation costs than are standardized transportation costs than are standardized consumer products or commodities (the seller with consumer products or commodities (the seller with the lowest transportation costs often has the the lowest transportation costs often has the advantage).advantage).

For commodities, low transportation costs can be For commodities, low transportation costs can be the deciding factor for determining who gets an the deciding factor for determining who gets an order. For expensive products, such as computers order. For expensive products, such as computers or sophisticated electronic instruments, or sophisticated electronic instruments, transportation costs usually represent only a small transportation costs usually represent only a small fraction of total costs and rarely influence the fraction of total costs and rarely influence the pricing decision.pricing decision.

PricingPricing

The international firms must continuously The international firms must continuously search for new transportation search for new transportation technologies to reduce unit transportation technologies to reduce unit transportation costs and thus enhance competitiveness. costs and thus enhance competitiveness.

TariffsTariffs

When products are transported across national When products are transported across national borders, tariffs have to be paid unless a special borders, tariffs have to be paid unless a special arrangement exists between the countries arrangement exists between the countries involved. involved.

Tariffs are normally assessed as a percentage of Tariffs are normally assessed as a percentage of the value. Although tariffs have declined over the value. Although tariffs have declined over recent years,they still influence pricing decisions recent years,they still influence pricing decisions in some countries. in some countries.

Tariffs are usually levied on the landed costs of Tariffs are usually levied on the landed costs of a product,which includes shipping to the a product,which includes shipping to the importing country. importing country.

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Tariffs costs can have a rippling effect and can Tariffs costs can have a rippling effect and can increase prices considerably for the end user. increase prices considerably for the end user.

Intermediaries tend to include tariff costs in their Intermediaries tend to include tariff costs in their cost of goods sold, and they add any operating cost of goods sold, and they add any operating margin to this amount. As a result, the impact on margin to this amount. As a result, the impact on the final end-user price can be substantial the final end-user price can be substantial whenever tariff rates are high. whenever tariff rates are high.

In addition to a 45 percent sales tax, 135 percent In addition to a 45 percent sales tax, 135 percent duty on the value of imported car was imposed in duty on the value of imported car was imposed in Egypt. BMW responded by setting up an Egypt. BMW responded by setting up an assembly plant in a duty-free zone and monthly assembly plant in a duty-free zone and monthly sales increased. sales increased.

TaxesTaxes

Local taxes imposed on imported products Local taxes imposed on imported products also affect the land cost of the also affect the land cost of the products.Various taxes may be imposed. products.Various taxes may be imposed. One of the most common is the value- One of the most common is the value- added tax (VAT). Each EU country sets its added tax (VAT). Each EU country sets its own value added tax structure. It has a own value added tax structure. It has a zero tax rate on exported goods.zero tax rate on exported goods.

TaxesTaxes

A company exporting from the Netherlands to A company exporting from the Netherlands to Belgium does not have to pay any tax on the Belgium does not have to pay any tax on the value-added in the Netherlands. However value-added in the Netherlands. However Belgian authorities do collect a tax on products Belgian authorities do collect a tax on products shipped from the Netherlands at the Belgium shipped from the Netherlands at the Belgium rate.rate.

Merchandise shipped from a non-member Merchandise shipped from a non-member country to any EU country, is assessed. The country to any EU country, is assessed. The VAT rate on the landed cost, in addition to any VAT rate on the landed cost, in addition to any tariffs that may apply to those products. tariffs that may apply to those products.

Local production costsLocal production costs

Global firms manufacture products in several Global firms manufacture products in several countries. The operating costs for raw materials, countries. The operating costs for raw materials, wages, energy, or financing may vary widely wages, energy, or financing may vary widely from country to country, allowing a firm to ship from country to country, allowing a firm to ship from a particularly advantageous location to from a particularly advantageous location to reduce prices or costs. Increasingly, companies reduce prices or costs. Increasingly, companies produce in locations that give them advantages produce in locations that give them advantages in freight, tariffs,or other transfer costs. in freight, tariffs,or other transfer costs. Consequently, judicious management of Consequently, judicious management of sourcing points may reduce produce costs and sourcing points may reduce produce costs and thus result in added pricing flexibility. thus result in added pricing flexibility.

Channel CostsChannel Costs

Channel costs are a function of channel length, Channel costs are a function of channel length, gross margin and logistics. Many countries have gross margin and logistics. Many countries have long distribution channels,which means an long distribution channels,which means an increase in the number of intermediaries and increase in the number of intermediaries and thus results in higher total costs and end-user thus results in higher total costs and end-user prices.In addition, gross margins at the retail prices.In addition, gross margins at the retail level tend to vary from country to country level tend to vary from country to country because of different logistics systems. All these because of different logistics systems. All these factors can add extra costs to a product that is factors can add extra costs to a product that is marketed globally. marketed globally.

Market factors affecting pricingMarket factors affecting pricing

Income levels : The income level of a country’s Income levels : The income level of a country’s population. Determines the amount and type of population. Determines the amount and type of goods and service bought.goods and service bought.

To respond to the purchasing power of different To respond to the purchasing power of different countries, Coca cola prices its product as a countries, Coca cola prices its product as a proportion of disposable income.proportion of disposable income.

Elasticity of demand can vary from country to Elasticity of demand can vary from country to country.country.

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Competition: The nature and size of competition Competition: The nature and size of competition can significantly affect price levels in any given can significantly affect price levels in any given market. market.

A firm acting as the sole supplier of a product in a A firm acting as the sole supplier of a product in a particular market enjoys greater pricing flexibility. particular market enjoys greater pricing flexibility.

The number and type of competitors greatly The number and type of competitors greatly influence pricing strategy in any market. influence pricing strategy in any market.

The public postal, telephone and telegraph The public postal, telephone and telegraph services of some countries are a public services of some countries are a public monopoly, allowing them to charge high rates monopoly, allowing them to charge high rates with threat of competition. with threat of competition.

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Nature of competition:Local competitors may Nature of competition:Local competitors may have different cost structures from those of have different cost structures from those of foreign companies,resulting in different prices. foreign companies,resulting in different prices.

Market prices for the same product may vary Market prices for the same product may vary from country to country,based on the competitive from country to country,based on the competitive situation.In China, local tax structures favor local situation.In China, local tax structures favor local competitors. E.g tax breaks to carscompetitors. E.g tax breaks to cars

Environmental factors affecting Environmental factors affecting priceprice

Exchange rate fluctuations: One of the Exchange rate fluctuations: One of the most unpredictable factors affecting prices most unpredictable factors affecting prices is the foreign exchange rates.As the is the foreign exchange rates.As the exchange rates move up and down, it exchange rates move up and down, it affects all the producers especially those affects all the producers especially those who are operating in countries with who are operating in countries with appreciating currencies. appreciating currencies.

Price Controls Price Controls

In some countries, government regulatory In some countries, government regulatory agencies influence the price of products agencies influence the price of products and services.Controls may be applied to and services.Controls may be applied to an entire economy to combat an entire economy to combat inflation;regulations may be applied only to inflation;regulations may be applied only to specific industries, such as the specific industries, such as the pharmaceutical industry.pharmaceutical industry.

Regulatory Factors: Dumping RegulationsRegulatory Factors: Dumping Regulations

The practice of selling a product at a price The practice of selling a product at a price below actual costs is referred to as below actual costs is referred to as dumping. Because of potential injuries to dumping. Because of potential injuries to domestic manufacturers, most domestic manufacturers, most governments have adopted regulations governments have adopted regulations against dumping.against dumping.

Antidumping cases have tripled since the Antidumping cases have tripled since the 1980s.Safeguard investigations are 1980s.Safeguard investigations are initiated.initiated.

International pricing strategiesInternational pricing strategies

Strategic pricing: price taker, simply adopting the Strategic pricing: price taker, simply adopting the price levels and conventions of competing firms.price levels and conventions of competing firms.

Penetrating pricingPenetrating pricing Skimming: high prices for luxury versions of Skimming: high prices for luxury versions of

established products. established products. INCOTERMS: The international chamber of INCOTERMS: The international chamber of

commerce publishes a set of export delivery commerce publishes a set of export delivery terms (incoterms) for use in international trade.terms (incoterms) for use in international trade.

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Price discrimination: different prices are Price discrimination: different prices are charged in different markets for the same charged in different markets for the same goods. It recognizes that each market is goods. It recognizes that each market is unique.unique.

Predatory pricing: adopting a price so low Predatory pricing: adopting a price so low that competitors are forced to leave the that competitors are forced to leave the market, thus enabling the predator to raise market, thus enabling the predator to raise prices in the long run.prices in the long run.

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Transfer pricing: setting the price levels at Transfer pricing: setting the price levels at which a parent firm” sells” its output to which a parent firm” sells” its output to subsidiaries in other countries. Transfer subsidiaries in other countries. Transfer prices need to be realistic in order that the prices need to be realistic in order that the profitability of various international profitability of various international operations may be assessed.operations may be assessed.

Global communication strategyGlobal communication strategy

Push-oriented strategy: personal selling.Push-oriented strategy: personal selling. Channel length can also be an important factor Channel length can also be an important factor

in determining the amount of personal selling or in determining the amount of personal selling or push strategy to be used.push strategy to be used.

If a company faces the same channel length If a company faces the same channel length abroad as it does in the domestic market, no abroad as it does in the domestic market, no change is needed in the push strategy. change is needed in the push strategy. However,when a company faces a longer However,when a company faces a longer channel because other intermediaries such as channel because other intermediaries such as local distributors, are added, the firm may be local distributors, are added, the firm may be better off shifting to a pull campaign. better off shifting to a pull campaign.

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Push strategy is characterized by greater Push strategy is characterized by greater dependence on advertising directed at the dependence on advertising directed at the end user of a product or a service. Pull end user of a product or a service. Pull campaigns are typical for consumer good campaigns are typical for consumer good firms that need to approach a large firms that need to approach a large segment of the market. segment of the market.

Personal sellingPersonal selling

Global selling through multi-country sales Global selling through multi-country sales forceforce

Purchasing behaviorPurchasing behaviorBuying criteriaBuying criteriaLanguageLanguageBusiness etiquette: work culture in Business etiquette: work culture in

different countries.different countries.

Internationalizing Internationalizing communicationcommunication

Standardization or customization of Standardization or customization of promotional messages. promotional messages.

Translation of messagesTranslation of messages Internal advertising agencyInternal advertising agency International media planningInternational media planningBelow the line marketing Below the line marketing

communication(besides advertising, like communication(besides advertising, like PR, corporate branding)PR, corporate branding)

International marketingInternational marketing

International direct marketing International direct marketing -Direct mail-Direct mail International relationship marketing:it seeks to establish International relationship marketing:it seeks to establish

long-term relationships with customers based on trust long-term relationships with customers based on trust and mutual co-operation.and mutual co-operation.

Techniques include: the extensive provision of Techniques include: the extensive provision of information on the firm and its products, personalization information on the firm and its products, personalization of communications with customers, free gifts and of communications with customers, free gifts and samples,attractive premium offers, and the careful samples,attractive premium offers, and the careful monitoring of the relationship formed with particular monitoring of the relationship formed with particular customers.customers.

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International sales promotion: to stimulate International sales promotion: to stimulate impulse purchasing, encourage consumer impulse purchasing, encourage consumer loyalty, shift slow moving stock,increase loyalty, shift slow moving stock,increase the frequency of repeat buying, smooth the frequency of repeat buying, smooth out seasonal demand, and generally draw out seasonal demand, and generally draw attention to the firm and its products. attention to the firm and its products.

Trade fairs and exhibitionsTrade fairs and exhibitions