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Assignment II

INTERNATIONAL

MARKETING

ZAHID NAZIR

Roll # AB 523655

Semester: Spring 2010

(5588)

MBA Executive

Pricing Issues in International Marketing

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PRICING - Introduction

Setting the right price is an important part of effective marketing. It is the only part of the marketing mix that generates revenue (product, promotion and place are all about marketing costs).

Price is also the marketing variable that can be changed most quickly, perhaps in response to a competitor price change.

Put simply, price is the amount of money or goods for which a thing is bought or sold.

The price of a product may be seen as a financial expression of the value of that product.

For a consumer, price is the monetary expression of the value to be enjoyed/benefits of purchasing a product, as compared with other available items.

The concept of value can therefore be expressed as:

(Perceived) VALUE = (Perceived) BENEFITS – (Perceived) COSTS

A customer’s motivation to purchase a product comes firstly from a need and a want: e.g.

Need: "I need to eat

Want: I would like to go out for a meal tonight")

The second motivation comes from a perception of the value of a product in satisfying that need/want (e.g. "I really fancy a McDonalds").

The perception of the value of a product varies from customer to customer, because perceptions of benefits and costs vary.

Perceived benefits are often largely dependent on personal taste (e.g. spicy versus sweet, or green versus blue). In order to obtain the maximum possible value from the available market, businesses try to ‘segment’ the market – that is

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to divide up the market into groups of consumers whose preferences are broadly similar – and to adapt their products to attract these customers.

In general, a products perceived value may be increased in one of two ways – either by:

1) Increasing the benefits that the product will deliver, or, 2) Reducing the cost.

For consumers, the PRICE of a product is the most obvious indicator of cost - hence the need to get product pricing right.

Factors affecting demand

Consider the factors affecting the demand for a product that are

1) within the control of a business and 2) outside the control of a business:

Factors within a businesses’ control include:

Price (assuming an imperfect market – i.e. not perfect competition)

Product research and development

Advertising & sales promotion

Training and organisation of the sales force

Effectiveness of distribution (e.g. access to retail outlets; trained distributor agents)

Quality of after-sales service (e.g. which affects demand from repeat-business)

Factors outside the control of business include:

The price of substitute goods and services

The price of complementary goods and services

Consumers’ disposable income

Consumer tastes and fashions

Price is, therefore, a critically important element of the choices available to businesses in trying to attract demand for their products.

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PRICING ISSUES IN INTERNATIONAL MARKETING

Introduction

Among the four marketing mix, product, distributing channels, promotion and

price, only price creates income and the other three generate costs. Price, besides

creating income, plays a major role as a strategic factor in developing competitive

advantage in the market. The amount of income and promotion of a company

regarding the positioning and finding a suitable position in the mind of customers

are related to suitable pricing. Decision making for pricing is not an easy task and

many factors are affecting in this decision. The reason for some companies which

are not so active for export pricing is that they have a good sale in internal market

because of their product character which has good internal market or in some

countries due to limiting import regulation. These companies are worried about

heir global competitive positions too, and need a prescription for their future

activity because they also feel that in the global marketing acting ethnocentric will

not be enough. Two main factors for this company to be considered are internal

market condition and the amount of authority granted to export managers for

declaring price to different customers. Below we will discuss kind of factors

affecting pricing and kinds of pricing and demonstrate a model which could be

important in export pricing for the global marketing pricing by considering the

amount of authority for pricing and the conditions of internal market.

A number of different pricing strategies are available to global marketers. An

overall goal must be to contribute to company sales and profit objective

worldwide. In this article we will review the theories relating to pricing, policies of

pricing, and will discuss the practical view of companies corresponding to

different price statement, and based on experience of the author, as a faculty

member and export manager, a conceptual model for pricing will be offered.

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LITERATURE REVIEW Customer- oriented strategies such as market skimming, penetration, and market

holding can be used when customer perceptions, as determined by the value of

equation, are used as a guide. Global pricing can also be based on other external

criteria such as the escalations in costs when good are shipped long distance

across national boundaries. The issue of global pricing can also be fully integrated

in the product design process, an approach widely use by Japanese companies.

Pricing in global markets must be evaluated at regular intervals and adjusted if

necessary. Similarly pricing objectives may vary, depending on product’s life cycle

stage and the country-specific competitive situation.

Any pricing system should address price floor, price ceiling and optimum prices in

each of national market in which the company operates. The pricing

consideration for marketing outside the home countries are the reflection of

quality in price, competitiveness, the kind of pricing objective i.e. penetration,

skimming holding, the type of discount, market segmentation, the pricing option

in case of costs increase or decrease, the logicalness of price by the host- country,

and its laws and the probable dumping.

Three major objectives known in pricing are:

Market skimming

Price penetration

Market holding.

Market Skimming

The market skimming pricing strategy is an attempt to reach a market segment

that is willing to pay a premium price for a product. In such case the product must

create high value for buyers or the knowledge of customer regarding the

technology used for the product is not sufficient. This pricing strategy is often

used in the introductory phase of product life cycle, when both production

capacity and competition are limited by setting high price the demand is limited

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to early adopters who are willing and able to pay the price. The goals of this

pricing are maximize revenue on limited volume to match demand and to

reinforce customers’ perception of high product value.

Penetration Pricing

Penetration pricing uses price as a competitive weapon to gain market position.

The majority of companies, located in Pacific Rim, use this type of pricing. Scale-

efficient plans and lo-cost labor allow these companies to attack the market.

Usually a first- time exporter do not use this type of pricing because it may call for

some losses for some length of time which his company cannot afford it. Some

innovative companies, when their product is not patentable, use this strategy to

achieve market saturation before the other competitors can coy. The sale volume

it expects to achieve in the markets leads to scale economies and lower costs.

Market Holding The market holding strategy is frequently adoptee by companies that want to

maintain their share of the market. In single- country marketing, this strategy

often involves reacting to price adjustments by competitors. One of the changes

factors in the price in global marketing is the currency fluctuations which often

trigger price adjustments. Adjusting prices to fit the competitive situation may

mean lower profit margins. A strong home currency and rising costs in the home

country may also force a company to shift its sourcing to in-country or third-

country manufacturing or licensing agreements, rather than exporting from home

country, to maintain market share. Market holding means that a company must

carefully examine all its costs to ensure that it will be able to remain competitive

in target markets.

Another strategy, frequently used by companies new to exporting is cost-plus to

gain toehold in global marketplace. There are two cost-plus pricing methods:

historical accounting cost method which defines cost as the sum of all direct and

indirect manufacturing and overhead costs, and estimated future cost method

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which is used mostly in recent years. Cost –plus pricing requires adding up all

costs required to get the product to destination, plus shipping and ancillary

charges, and a profit percentage. It is relatively easy to arrive at a quote,

assuming that accounting costs are available. This approach, however, ignores

demand and competitive conditions in target market. Therefore this approach is

either too high or too low in the light of market and competitive conditions.

Novice exporters do not care because they react to the market opportunities

rather than having proactive seeking for them. Price escalation is the increase in a

product’s price as transportation, duty, and distributor margins are added to the

factory price. Beginning exporters might use this approach to determine the CIF

price plus any inland charges as duty, inland transportation, distributor margins

etc.

USING SOURCING AS A STRATEGIC PRICING TOOLS There are several options when addressing the problem of price escalation

described earlier. Domestic manufacturers may be forced to switch to lower

income, lower wages countries for the sourcing of certain components or even

finished goods to keep costs and prices competitive. Some people believe low

wage approach a one- time advantage, and cannot be substitute for ongoing

creativity which causes value. Another option is to source 100 percent of a

finished product offshore near the local markets. In this case the manufacturer

can enter into one of the arrangements such as licensing, joint venture, or a

technology transfer agreement. In this case the manufacturer has presence in the

market and high costs of home land and transportation will no longer be an issue.

Another option is a through audit of the distribution structure in the target

market. A rationalization of the distribution structure can substantially reduce the

total markups required to achieve distribution in international market.

Rationalization may include selecting new intermediaries, assigning new

responsibilities to old intermediaries, or establishing direct marketing operations.

Exporters also encounter to dumping, which is sale of an imported product at a

price lower than that normally charged in a domestic market or country of origin.

Many countries have their own policies against dumping but the main point is

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how to prove a company is dumping and the time it take to get the losses from

this action.

FACTORS AFFECTING PRICING DECISION

The final price for a product may be influenced by many factors which can be categorized into two main groups:

Internal Factors - When setting price, marketers must take into

consideration several factors which are the result of company decisions and

actions. To a large extent these factors are controllable by the company

and, if necessary, can be altered. However, while the organization may

have control over these factors making a quick change is not always

realistic. For instance, product pricing may depend heavily on the

productivity of a manufacturing facility (e.g., how much can be produced

within a certain period of time). The marketer knows that increasing

productivity can reduce the cost of producing each product and thus allow

the marketer to potentially lower the product’s price. But increasing

productivity may require major changes at the manufacturing facility that

will take time (not to mention be costly) and will not translate into lower

price products for a considerable period of time.

External Factors - There are a number of influencing factors which are not

controlled by the company but will impact pricing decisions. Understanding

these factors requires the marketer conduct research to monitor what is

happening in each market the company serves since the effect of these

factors can vary by market.

INTERNAL FACTORS

1. Marketing Objectives

Marketing decisions are guided by the overall objectives of the company.

While we will discuss this in more detail when we cover marketing strategy in a

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later tutorial, for now it is important to understand that all marketing

decisions, including price, work to help achieve company objectives.

Corporate objectives can be wide-ranging and include different objectives for

different functional areas (e.g., objectives for production, human resources,

etc). While pricing decisions are influenced by many types of objectives set up

for the marketing functional area, there are four key objectives in which price

plays a central role. In most situations only one of these objectives will be

followed, though the marketer may have different objectives for different

products. The four main marketing objectives affecting price include:

Return on Investment (ROI) – A firm may set as a marketing objective the

requirement that all products attain a certain percentage return on the

organization’s spending on marketing the product. This level of return

along with an estimate of sales will help determine appropriate pricing

levels needed to meet the ROI objective.

Cash Flow – Firms may seek to set prices at a level that will insure that sales

revenue will at least cover product production and marketing costs. This is

most likely to occur with new products where the organizational objectives

allow a new product to simply meet its expenses while efforts are made to

establish the product in the market. This objective allows the marketer to

worry less about product profitability and instead directs energies to

building a market for the product.

Market Share – The pricing decision may be important when the firm has

an objective of gaining a hold in a new market or retaining a certain percent

of an existing market. For new products under this objective the price is set

artificially low in order to capture a sizeable portion of the market and will

be increased as the product becomes more accepted by the target market

(we will discuss this marketing strategy in further detail in our next

tutorial). For existing products, firms may use price decisions to insure they

retain market share in instances where there is a high level of market

competition and competitors who are willing to compete on price.

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Maximize Profits – Older products that appeal to a market that is no longer

growing may have a company objective requiring the price be set at a level

that optimizes profits. This is often the case when the marketer has little

incentive to introduce improvements to the product (e.g., demand for

product is declining) and will continue to sell the same product at a price

premium for as long as some in the market is willing to buy.

2. Marketing Strategy

Marketing strategy concerns the decisions marketers make to help the

company satisfy its target market and attain its business and marketing

objectives. Price, of course, is one of the key marketing mix decisions and

since all marketing mix decisions must work together, the final price will be

impacted by how other marketing decisions are made. For instance,

marketers selling high quality products would be expected to price their

products in a range that will add to the perception of the product being at a

high-level.

It should be noted that not all companies view price as a key selling feature.

Some firms, for example those seeking to be viewed as market leaders in

product quality, will deemphasize price and concentrate on a strategy that

highlights non-price benefits (e.g., quality, durability, service, etc.). Such

non-price competition can help the company avoid potential price wars

that often break out between competitive firms that follow a market share

objective and use price as a key selling feature.

3. Costs

For many for-profit companies, the starting point for setting a product’s price

is to first determine how much it will cost to get the product to their

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customers. Obviously, whatever price customers pay must exceed the cost of

producing a good or delivering a service otherwise the company will lose

money.

When analyzing cost, the marketer will consider all costs needed to get the

product to market including those associated with production, marketing,

distribution and company administration (e.g., office expense). These costs can

be divided into two main categories:

Fixed Costs - Also referred to as overhead costs, these represent costs the

marketing organization incurs that are not affected by level of production

or sales. For example, for a manufacturer of writing instruments that has

just built a new production facility, whether they produce one pen or one

million they will still need to pay the monthly mortgage for the building.

From the marketing side, fixed costs may also exist in the form of

expenditure for fielding a sales force, carrying out an advertising campaign

and paying a service to host the company’s website. These costs are fixed

because there is a level of commitment to spending that is largely not

affected by production or sales levels.

Variable Costs – These costs are directly associated with the production

and sales of products and, consequently, may change as the level of

production or sales changes. Typically variable costs are evaluated on a per-

unit basis since the cost is directly associated with individual items. Most

variable costs involve costs of items that are either components of the

product (e.g., parts, packaging) or are directly associated with creating the

product (e.g., electricity to run an assembly line). However, there are also

marketing variable costs such as coupons, which are likely to cost the

company more as sales increase (i.e., customers using the coupon).

Variable costs, especially for tangible products, tend to decline as more

units are produced. This is due to the producing company’s ability to

purchase product components for lower prices since component suppliers

often provide discounted pricing for large quantity purchases.

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Determining individual unit cost can be a complicated process. While variable

costs are often determined on a per-unit basis, applying fixed costs to individual

products is less straightforward. For example, if a company manufactures five

different products in one manufacturing plant how would it distribute the plant’s

fixed costs (e.g., mortgage, production workers’ cost) over the five products? In

general, a company will assign fixed cost to individual products if the company

can clearly associate the cost with the product, such as assigning the cost of

operating production machines based on how much time it takes to produce each

item. Alternatively, if it is too difficult to associate to specific products the

company may simply divide the total fixed cost by production of each item and

assign it on percentage basis.

EXTERNAL FACTORS

1. Elasticity of Demand

Marketers should never rest on their marketing decisions. They must

continually use market research and their own judgment to determine

whether marketing decisions need to be adjusted. When it comes to

adjusting price, the marketer must understand what effect a change in

price is likely to have on target market demand for a product.

Understanding how price changes impact the market requires the marketer

have a firm understanding of the concept economists call elasticity of

demand, which relates to how purchase quantity changes as prices change.

Elasticity is evaluated under the assumption that no other changes are

being made (i.e., “all things being equal”) and only price is adjusted. The

logic is to see how price by itself will affect overall demand. Obviously, the

chance of nothing else changing in the market but the price of one product

is often unrealistic. For example, competitors may react to the marketer’s

price change by changing the price on their product. Despite this, elasticity

analysis does serve as a useful tool for estimating market reaction.

Elasticity deals with three types of demand scenarios:

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Elastic Demand – Products are considered to exist in a market that exhibits

elastic demand when a certain percentage change in price results in a larger

and opposite percentage change in demand. For example, if the price of a

product increases (decreases) by 10%, the demand for the product is likely

to decline (rise) by greater than 10%.

Inelastic Demand – Products are considered to exist in an inelastic market

when a certain percentage change in price results in a smaller and opposite

percentage change in demand. For example, if the price of a product

increases (decreases) by 10%, the demand for the product is likely to

decline (rise) by less than 10%.

Unitary Demand – This demand occurs when a percentage change in price

results in an equal and opposite percentage change in demand. For

example, if the price of a product increases (decreases) by 10%, the

demand for the product is likely to decline (rise) by 10%.

For marketers the important issue with elasticity of demand is to

understand how it impacts company revenue. In general the following

scenarios apply to making price changes for a given type of market

demand:

For elastic markets – increasing price lowers total revenue while decreasing

price increases total revenue.

For inelastic markets – increasing price raises total revenue while

decreasing price lowers total revenue.

For unitary markets – there is no change in revenue when price is changed.

2. Customer Expectations

Possibly the most obvious external factors that influence price settings are

the expectations of customers and channel partners. As we discussed,

when it comes to making a purchase decision customers assess the overall

“value” of a product much more than they assess the price. When deciding

on a price marketers need to conduct customer research to determine

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what “price points” are acceptable. Pricing beyond these price points could

discourage customers from purchasing.

Firms within the marketer’s channels of distribution also must be

considered when determining price. Distribution partners expect to receive

financial compensation for their efforts, which usually means they will

receive a percentage of the final selling price. This percentage or margin

between what they pay the marketer to acquire the product and the price

they charge their customers must be sufficient for the distributor to cover

their costs and also earn a desired profit.

3. Competitive and Other Products

Marketers will undoubtedly look to market competitors for indications of

how price should be set. For many marketers of consumer products

researching competitive pricing is relatively easy, particularly when Internet

search tools are used. Price analysis can be somewhat more complicated

for products sold to the business market since final price may be affected

by a number of factors including if competitors allow customers to

negotiate their final price.

Analysis of competition will include pricing by direct competitors, related

products and primary products.

Direct Competitor Pricing – Almost all marketing decisions, including

pricing, will include an evaluation of competitors’ offerings. The impact of

this information on the actual setting of price will depend on the

competitive nature of the market. For instance, products that dominate

markets and are viewed as market leaders may not be heavily influenced by

competitor pricing since they are in a commanding position to set prices as

they see fit. On the other hand in markets where a clear leader does not

exist, the pricing of competitive products will be carefully considered.

Marketers must not only research competitive prices but must also pay

close attention to how these companies will respond to the marketer’s

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pricing decisions. For instance, in highly competitive industries, such as

gasoline or airline travel, competitors may respond quickly to competitors’

price adjustments thus reducing the effect of such changes.

Related Product Pricing - Products that offer new ways for solving

customer needs may look to pricing of products that customers are

currently using even though these other products may not appear to be

direct competitors. For example, a marketer of a new online golf instruction

service that allows customers to access golf instruction via their computer

may look at prices charged by local golf professionals for in-person

instruction to gauge where to set their price. While on the surface online

golf instruction may not be a direct competitor to a golf instructor,

marketers for the online service can use the cost of in-person instruction as

a reference point for setting price.

Primary Product Pricing - As we discussed in the Product Decisions tutorial,

marketers may sell products viewed as complementary to a primary

product. For example, Bluetooth headsets are considered complementary

to the primary product cell phones. The pricing of complementary products

may be affected by pricing changes made to the primary product since

customers may compare the price for complementary products based on

the primary product price. For example, companies that sell accessory

products for the Apple iPod may do so at a cost that is only 10% of the

purchase price of the iPod. However, if Apple were to dramatically drop the

price, for instance by 50%, the accessory at its present price would now be

20% of the of iPod price. This may be perceived by the market as a doubling

of the accessory’s price. To maintain its perceived value the accessory

marketer may need to respond to the iPod price drop by also lowering the

price of the accessory.

4. Government Regulations

Marketers must be aware of regulations that impact how price is set in the

markets in which their products are sold. These regulations are primarily

government enacted meaning that there may be legal ramifications if the

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rules are not followed. Price regulations can come from any level of

government and vary widely in their requirements. For instance, in some

industries, government regulation may set price ceilings (how high price

may be set) while in other industries there may be price floors (how low

price may be set). Additional areas of potential regulation include:

deceptive pricing, price discrimination, predatory pricing and price fixing.

Finally, when selling beyond their home market, marketers must recognize

that local regulations may make pricing decisions different for each market.

This is particularly a concern when selling to international markets where

failure to consider regulations can lead to severe penalties. Consequently

marketers must have a clear understanding of regulations in each market

they serve.

ENVIRONMENTAL FACTORS AFFECTING PRICING

Marketers must deal with a number of environmental factors when making pricing decisions. Currency fluctuation, inflation, government controls and subsidies, competitive behavior, and market demand are among these factors. Some of these factors work in conjunction with others; for example, inflation may be accompanied by government controls.

1. Currency Fluctuation

When currency fluctuation occurs, there are two options for pricing: one is

to fix the price of products in country target market. In this case, any

appreciation or depreciation of the value of the currency in the country of

production will lead to gain or losses for the seller. The other option is to fix

the price of products in home country currency. If it is done, any

appreciation or depreciation of the home country currency will result in

price increases or decreases for customers and no immediate

consequences for the seller. In actual practice, a manufacturer and its

distributor may work together to maintain Market share in international

market. Either party, or both, may choose to take a lower profit

percentage. In the long term contracts, both parties agree an exchange rate

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clause, which allows them to agree to supply and purchase at fixed prices in

each company’s national currency. In this case if the exchange rate

fluctuate within a specified range, say plus or minus of five percent, the

agreed price will not be changed, but if more than that, say plus or minus of

ten percent, then new discussion or negotiation for adjusting the prices

should be opened.

2. Inflation

Inflation, or a persistent upward change in price levels, is a worldwide

phenomenon. Inflation requires periodic adjustments. These adjustments

are caused by rising costs that must be covered by increased selling prices.

An essential requirement when pricing in an inflationary environment is the

maintenance of operating profit margins. LIFO costing method is prescribed

by some practitioners under conditions of rising prices.

3. Government Control

Government control can also limit the freedom to adjust prices, and the

maintenance of margins should be compromised. In a country that is

undergoing severe financial difficulties and is in the midst of a financial

crisis (e.g., a foreign exchange shortage caused in part runaway inflation),

government officials are under pressure to take some type of action.

Governmental actions in the case of hard financial problems include use of

broad or selective price controls, prior cash deposit requirements for

imports, customs duties for imports, value added tariffs, proliferation of

rules and regulations, and subsidization. All of these controls are against

exporting pricing when a company wants to export products to an

importing country which is under control of the government. In fact the

more control rendered by a government the more difficult to enter in that

country market. In this case the availability of this market is not so suitable.

Pricing decisions are also bounded by competitive action. If competitors are manufacturing or sourcing in a lower costs country, it may be necessary to cut prices to stay competitive.

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The other fact is the study of relationship between quality and price.

Recent four country international study found that there is a weak relation

between price and quality. The authors concluded that the lack of strong

price- quality relationship appears to be an international phenomenon

(Faulds, 1994, 7:25). Consumers with limited information rely more on

product style and appearance and less on technical quality as measured by

testing organizations. Still some marketers believe that this relation is

strong and has the major role in product value. The recent following model

Created by a group of marketing lecturers from southern England based in

Chi Chester, described in http://marketingteacher.com (2007) shows strong

relationship between price and quality which offers four strategy of

economy, when the price and quality are both low, penetration, when the

price low yet the quality is high to get more market share or penetrate in a

new market, skimming, when the price is high but the quality is high and

the goods are not supplied by too many competitors, and premium, when

the price and quality are both high and there is a uniqueness about the

product or service.

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The knowledge of customer about the technology of new product and the amount of his or her awareness can play a major role in pricing. As much as the knowledge of a customer about the product is low, the producer can use this margin to skim the market or get a better premium from this market.

TRANSFER PRICING

Transfer pricing refers the pricing of goods and services bought and sold by

operating units or divisions of a single company. In other word, transfer pricing

concerns intra corporate exchanges- transactions between buyers and sellers that

have the same corporate parent. For example Toyota subsidiaries sell to, and buy

from each other. This happens when the company expands and profit centers are

shaped in the corporate financial picture.

There are three alternative approaches to transfer pricing:

1. Cost based pricing

2. Market based transfer pricing

3. Negotiated prices.

Cost Based Pricing

Some companies using cost- based approach may arrive at transfer prices that

reflect variable and fixed manufacturing costs only. Alternatively, transfer prices

may be based on full costs, including overhead costs from marketing, R&D, and

other functional areas. The way costs are defined may have an impact on tariffs

and duties sales to affiliates and subsidiaries by global companies. Cost plus

pricing is also based by costs but different approach. In this approach, profit must

be shown for any product or service at every stage of movement through the

corporate system. It may be set at certain percentage of fixed costs such as 15

percent of cost. It is unrelated to competitive and demand conditions but many

exporters use it.

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Market Based Transfer Pricing

Another approach to transfer pricing is market- based approach. A market –based

transfer price is derived from the price required to be competitive in the

international market. The volume level also plays a major role in pricing. To use

market- based transfer prices to inter in a small market, third country sourcing

may be required. This enables a company to establish its name or franchise in the

market without committing to a major capital investment.

Negotiated Prices

A third alternative is to allow the organization affiliates to negotiate transfer

prices among themselves. In some instances, the final transfer price may reflect

costs and market prices, but this is not a requirement. (Horngren, Foster, 1991)

In a research conducted by Horngren and foster (1991), was found that 46 percent of U.S. based companies, 33percent of Canadian, 41 percent of Japanese and 38 percent of U.K.-based companies use some form of cost based transfer pricing. Corporate costs and profits are also affected by import duties. The higher the

duty rate, the more desirable is a low transfer price. The high duty creates an

increase to reduce transfer prices to minimize the customs duty.

GLOBAL PRICING – THREE POLICY ALTERNATIVES

The companies also may use three policies on worldwide pricing: extension /

ethnocentric, adaptation/poly centric and invention/ geocentric.

Extension / Ethnocentric

In the extension / ethnocentric policy, the price of an item is the same around the

world and the importer absorb freight an import duties. Empirically in this policy,

no information on competitive or market condition is required and does not

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respond to the every market neither it maximize the company profits in each

national market nor globally. Its only advantage is to simply entering a market if it

suit to their price which the exporter has no information about it.

Adaptation / Polycentric In the adaptation / polycentric policy the exporter tries to match the price with

any individual local market. This policy, in practice, permits subsidiary or affiliate

manager to establish any price they feel is most desirable in their circumstances.

This policy may cause product arbitrage, because of different prices in different

location and enterprising business managers may use it and foster a grey market

for the company’s product. It may also weaken the corporate strategies of the

central company because all local market managers have the freedom to set the

price for their markets. Different prices for different places may have another

disadvantage, because it may send a signal to the rest of the world that is

contrary to company interests. A price move anywhere in the world is known

instantly all over the world specially by using the world wide webs in the internet

by companies which makes the customers aware of the competitive price

information.

Invention / Geocentric The third and the best policy to international pricing is termed invention/

geocentric. Using this approach a company neither fixes a single price nor remains

apart from subsidiary price decisions, but instead strikes intermediate positions.

There are unique market factors, like local costs, income levels, competition, and

local marketing strategies that should be recognized in arriving at pricing

decisions. The reason we perceive it as the best policy is that local costs plus a

return on invested capital and personnel fix the price floor for the long term. This

approach lends itself to global competitive strategy. A global competitor will take

in to account global markets and global competitors in establishing prices. Prices

will support global strategy objectives rather than the objectives of maximizing

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performance in a single country. This policy forces the exporter to consider the

said aspects of any market globally and focusing the company’s strategy as well.

In the study of Samli and Jacobs (1994), for the pricing practices of U.S.

multinational firms, they concluded that 70 percent of the firms standardized

their prices, where as 30 percent used variable pricing in world market. They said,

it would appear that the companies should consider renewing the pricing policies.

CONCLUSION Pricing is one the marketing mix and reflects costs and competitive factors. The maximum absolute price for a product does not exist, yet for each market, the price should be fixed concerning the customer attitude. The goal of most marketing strategies is to determine a price which could be accountable for customer perception. Meanwhile it should not cause too much costs for the company. A company usually fixes prices regarding the value that a customer concerns for the product, and covers costs and provide a profit margin. Pricing strategies include increasing interests regarding the importance of the product in the market. We can use different pricing strategies, concerning the environmental factors of markets. Each company should determine competitive market, its costs for each market, the availability of them, and other environmental dimensions. Export managers, from their advantage point of their familiarities to markets

should have enough authority to determine strategic prices for each market

regarding the life cycle of the product in each market an their stability and

profitability for that market. Export managers should be qualified and brilliant

mind knowing the corporate strategy and acting different roles in different

markets. But they should consider two things. The first is to program pricing

strategies to respond the customer’s needs and to take the company profits in to

account for the long term. Managers should recruit good and global experience

marketing experts with broad strategic vision, make him to take and OJT course to

get familiar with the firm and its internal and global target markets, and then give

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him room and responsibility, by granting authority to use his creation and

innovation for price decision making to satisfy all customers and gain strategic

income for the organization. The major findings of this article is classification of

pricing theories in marketing based on point of delivery and introducing a

conceptual model indicating different pricing strategies based on the internal

market condition and the amount of authority granted to export or global

marketing manager for pricing decisions with the emphasis on delegating high

authority to expert and informed global marketing managers and warn local

market oriented companies to think about the global competition and do not rely

on the local government legal supports.

References:

Keegan Warren “Global Marketing Management” Damon Darlin “Trade Strategies”

Kotler Philip “Marketing Management”

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