Chapter 13

INTERNATIONAL PRICING STRATEGY

• Pricing is a particularly critical and complex variable in overseas marketing strategies.• The pricing decision

ultimately affects an organization’s ability to stay in the market .• Different pricing

approaches are available and a variety of concerns influence pricing decision including intrafirm, pricing , dumping and leasing .

PRICING

• Pricing an important decision in any business, be it domestic or international , directly affects revenue thus profitability .

• Price affects the extent of promotional support to be allocated to a product.

Importance of Pricing

Parent Company’s Role in Pricing

• The parent company must decide how much say it wants to reserve for itself in international pricing, including whether the pricing decision will be made centrally or delegated for foreign subsidiaries.

• To an extent, the pricing role of the parent company is determined by the emphasis put on price competition in the total marketing mix.

Strategic Significance Of Pricing

• The role assigned to the pricing variable in developing the marketing mix depends on its strategic significance . Traditionally , U.S companies have relied more on non price competition than on pricing.

• In brief, pricing in overseas markets is a controversial issue involving legal, economic, governmental, and marketing aspects, both in the practice of differentiated pricing and in price uniformity.

• In theory, it is desirable on economic grounds to set different prices in different markets, because demand an supply differ from country to country. This occurs under any form of imperfect competition such as pure monopoly , oligarchy and monopolistic competition.

UNIFORM VERSUS

DIFFERENTIATED PRICING

Responsibility of Price Setting

3 ways to allocate price setting responsibility:

1. Headquarters only decides2. Each overseas subsidiary decides independently.3. Decisions are jointly made between the parent

and the subsidiary.

• The factors to consider in international pricing exceed those in strictly domestic marketing not only number , but also in ambiguity and risk.

PRICING

FACTORS

Pricing Objectives

General terms:• Image Building – pricing

should project a certain image of the product / company.

• Stability-pricing should realize a stable level of sales and profits.

• Ethic - the setting of a price should meet the ethical standards of good and fair business.

• COST- is one important factor in price determination.• FIXED COST- are those

that do not vary with the scale of operations , such as number of units manufactured.• VARIABLE COST- such

as cost of material and labor used in the manufacturer of a product bear a direct relationship to the level of operations.

COST ANALYSIS

1. The ratio of fixed cost to variable costs

2. The economies scale available to a firm

3. The cost structure of a vis-a-vis competitors

IMPORTANT OF COSTS

ON PRICING STRATEG

Y

• The competition in an industry can be analyzed with reference to such factors as the number of firms in the industry , product differentiation , and ease of entry.

COMPETITION

• Customer demand for a product is another key factor in price determination. • Demands is based on a

variety of considerations among which price is just one.

CUSTOMER

PERSPECTIVE

• The relationship between price and demand or sensitivity of price and it refers to the number of units of a product that would be demanded at different prices.

ELASTICITY OF

DEMAND

• Industry Demand for a product is elastic if demand can be substantially increased by lowering prices.

• If lowering price has little effect on demand it would be considered inelastic.

INDUSTRY DEMAND

• An individual firms seeks to find out how much market share it can be command in the market by changing its own prices.

INDIVIDUAL FIRMS DEMAND

GOVERNMENT PRICING

• Government rules and regulations pertaining to pricing should be taken into account in setting price.

• Legal requirements of both the host government and the U.S government must be satisfied.

INTERNATIONAL PRICE SETTING • INTERNATIONAL PRICING – is affected by such

factors as differences in costs, demand conditions, competitions and government laws.

• TYPES OF PRICING ORIENTATION 1. COST APPROACH- involves first computing all

relevant costs and then adding a desired profit mark up to arrive at the price.

2. MARKET APPROACH- pricing starts in a reverse fashion.