Ch11

Use with INTERNATIONAL MARKETING STRATEGY:

Analysis, development and implementation 5TH edition ISBN 13: 978-1-84480-763-5 Published by Cengage Learning DOOLE AND LOWE

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PRICING FOR INTERNATIONAL MARKETS

Session 11



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THE STAGES OF DEVELOPMENT AND IMPLEMENTATION OF PRICING STRATEGIES

• Analysing the factors which influence international pricing– such as the cost structures, the value of the product, the market

structure, competitor pricing levels and a variety of environmental constraints.

• Confirming what impact the corporate strategies should have on pricing policy.

• Evaluating the various strategic pricing options– and selecting the most appropriate approach.

• Implementing the strategy through the use of a variety of tactics and procedures– to set prices at SBU level.

• Managing prices and financing international transactions.



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FACTORS INFLUENCING THE PRICING STRATEGY

Company and Product Factors

• Corporate and marketing objectives• Firm and product positioning• Product range, life cycle, substitutes, product

differentiation and unique selling propositions• Cost structures, manufacturing, experience

effect and economies of scale• Marketing, product development• Available resources• Inventory• Shipping costs



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Market Factors

• Consumers perceptions, expectations and ability to pay

• Need for product adaptation, market servicing• Market structure, distribution channels

discounting pressures• Market growth, demand elasticities• Need for credit• Competition objectives, strategies and

strengths



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Environmental Factors

• Government influences and constraints

• Currency fluctuations

• Business cycle stage, level of inflation

• Use of non-money payment and leasing



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THE EFFECT OF ADDITIONAL EXPORT SALES ON CONTRIBUTION



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SPECIFIC EXPORT COSTS (International Cost Reduction)

• Economies of scale• Learning curve

– Greater labour efficiency– Task specialisation and method improvement– New production processes– Better performance of existing equipment– Changes to the mix of resources– Greater product standardisation– Improved product designs

• Location of Production Facility– Comparative advantage– Manufacturing costs in developed countries



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SPECIFIC EXPORT COSTS



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INFLUENCING THE RESPONSE TO PRICING

• Consumer response– Distinctiveness of product– Level of perceived quality– Awareness of substitutes– Ease of making

comparisons– Price as a proportion of

total expenditure– Perceived benefit– Use of product in

conjunction with another– Shared costs of purchase– Perishability

• Competitors’ response– Commitment to markets

and products– Resources available– Internal cost structures– Customer/distribution

chain loyalty



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PRICING STRATEGIES AND OBJECTIVES

• Standardisation– Ethnocentric

• Adaption– Polycentric

• Invention– Geocentric

• Are you taking a: – cost oriented– market oriented– competition oriented

approach?



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PRICING OBJECTIVES

• Rate of return• Market stabilisation• Demand-led pricing• Competition-led

pricing• To reflect product

differentiation

• Market skimming• Market penetration• Early cash recovery• Prevent new entry



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SETTING A PRICE(Export pricing)

• Determine export market potential• Estimate the price range and target price• Calculate sales potential at the target price• Evaluate tariff and non-tariff barriers• Select suitable pricing strategy in line with company

objectives• Consider likely competitor response• Select pricing tactics, set distributor and end-user

prices• Monitor performance and take necessary corrective

action



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PRICING PROBLEMS

• Multi-national pricing

• Managing foreign currency / floating exchange rates

• Obtaining payment in high risk markets

• Administrative problems of cross-border goods transfer



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THREE TYPES OF GREY MARKET

SOURCE: Assmus and Weiss (1995)



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PARALLEL IMPORTING ORGREY MARKETING

• Conditions:– Product priced lower in home market– Products available internationally– Low trade barriers– Large price differentials



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DEFENCE AGAINST GREY MARKETING

• Seek government intervention or legal protection

• Refusal to issue warranties in certain markets• Buying out grey marketer• Price coordination strategies

– Economic measures– Centralisation– Formalisation– Informal Co-ordination



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A FRAMEWORK FOR SELECTING A CO-ORDINATION METHOD

Source: Assmus & Wiess (1995)



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TRANSFER PRICING

• Bases of Transfer:– At cost– At arm’s’ length– At cost plus

• Strategic Use:– Create and maintain barriers to entry– Avoid domestic tax liabilities– Avoid foreign tax– Manage levels of market involvement



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CURRENCY OF PRICING

• Benefits of quoting in a foreign currency– provide access to finance abroad

• At lower interest rates

– good currency management• Leading to potential of gaining additional profit

– responding to condition of contract– customers prefer quotes in own currency

• Allowing competitive comparison



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MANAGING CURRENCY FLUCTUATIONSDomestic Currency Weak

• Compete on price• Introduce new products with

additional features• Source / manufacture in the

domestic country• Fully exploit export

opportunities• Obtain payment in cash• Use full cost approach for

existing markets / marginal costs for new, more competitive, markets

• Repatriate foreign earned income quickly

• Reduce expenditure and buy services (advertising, transport, etc) locally

• Minimise overseas borrowing

• Invoice in domestic currency



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MANAGING CURRENCY FLUCTUATIONSWhen Domestic Currency Strong

• Compete on non-price factors (quality, delivery, service)

• Improve productivity and reduce costs

• Prioritise strong currency countries for exports

• Use counter-trade for weak currency countries

• Reduce profit margins and use marginal costs for pricing

• Keep the foreign earned income in the local country

• Maximise expenditures in local country currency

• Buy services abroad in local currencies

• Borrow money for expansion in local markets

• Invoice foreign customers in their own currency



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TYPES OF COUNTER-TRADE

• Barter

• Compensation trading

• Counter-purchase

• Offset

• Switch deals

• Cooperation agreements



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COUNTER-TRADEAdvantages

• New markets

• Sell off surplus or poor quality products

• Strengthens political ties

• Entry to high risk areas

• Circumvent government restrictions



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COUNTER-TRADEDisadvantages and Limitations

• Lack of flexibility

• Exchange products difficult to sell

• Difficulties in locating / organising counter-trade products

• No guide market prices

• Difficult profit evaluation

• May create new competition



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THE EXPORT ORDER PROCESS

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