Export Pricing Strategy

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Antecedents and actions of export pricing strategy: A conceptual framework and

research propositions

Matthew B Myers,S Tamer Cavusgil,Adamantios Diamantopoulos. European Journalof Marketing. Bradford: 2002. Vol. 36, Iss. 1/2; pg. 159, 30 pgs

Abstract (Summary)The export-pricing literature is characterized by a distinct lack of sound theoretical andempirical works. Of the marketing decision variables, pricing has received the leastattention in research despite the continued identification of this issue as an importantproblem area for firms engaged in export marketing. Businesses competinginternationally must develop an effective pricing strategy, as this is a critical factor intheir operation. Globalization also requires that management coordinate prices acrossmultiple export markets. Research is thus needed on the empirical relationship betweenan export-pricing strategy (EPS) and the factors that influence this strategy, as well as therelationship between EPS and the performance of the export venture. A multidimensionalconceptualization of export-pricing strategy is proposed in order to integrate the various

components of an EPS and link it with its antecedents.

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Copyright MCB UP Limited (MCB) 2002

[Headnote]

Keywords Pricing, Export, International business, Marketing, Management

[Headnote]

Abstract The export-pricing literature is characterized by a distinct lack of soundtheoretical and empirical works. Of the marketing decision variables, pricing has receivedthe least attention in research despite the continued identification of this issue as animportant problem area for firms engaged in export marketing. Businesses competinginternationally must develop an effective pricing strategy, as this is a critical factor intheir operation. Globalization also requires that management coordinate prices acrossmultiple export markets. Research is thus needed on the empirical relationship betweenan export-pricing strategy (EPS) and the factors that influence this strategy, as well as therelationship between EPS and the performance of the export venture. A multidimensionalconceptualization of export-pricing strategy is proposed in order to integrate the variouscomponents of an EPS and link it with its antecedents. Theoretical insights and empirical

findings from the general pricing literature, as well as executive insights from qualitativeinterviews, are connected with the conventional export-pricing and strategy literature intoan integrated model, and specific research propositions are offered for future cross-industry empirical studies.

Introduction
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The pricing of products in international markets is becoming increasingly difficult formanagers due to heightened competition (Cavusgil, 1996), gray market activities (Myers,1999; Assmus and Wiese, 1995), counter-trade requirements (Cavusgil and Sikora,1988), regional trading blocs (Weekly, 1992), the emergence of intra-market segments(Dana, 1998), and volatile exchange rates (Knetter, 1994). As global economic

foundations continue to shift, long-proven pricing structures are collapsing (Simon,1995). As competitive pressures increase, strategies for effective pricing of products forsale in foreign markets remain elusive (Samli and Jacobs, 1993).

Unfortunately, there is little research to guide managers in their international pricingefforts (Clark et al., 1999). Typically, they rely on intuitive measures and give morestrategic focus to other marketing decision variables (Cavusgil, 1996). This often leads tounsuccessful market ventures, since businesses operating in a global environment musthave a systematic pricing procedure (Samiee, 1987). Although Ricks et aL (1992) foundthat it was the number-two problem for international managers, pricing has perhaps beenthe most ignored marketing decision variable within the research (Li and Cavusgil, 1991;

Gronhaug and Graham, 1987; Cavusgil and Nevin, 1981). Most efforts to understand theeffects of pricing strategies on firm performance have been undertaken within a purelydomestic or single market context with little consideration for the increasinglyinternational configuration and organizational goals of the firm (Myers, 1997).

Several types of international pricing are done by firms, and each demands a differentapproach. Transfer pricing concerns the sale of products within the corporate family.Foreign-market pricing is done by a firm with production facilities within an overseasmarket (completed products do not cross borders to reach the customer). Export pricingrefers to products made in one country and sold to customers outside the corporate familyin another country (i.e. independent distributors). In this article, we concentrate solely on

export pricing, which is a frequent and formidable challenge for most exporters (Walters,1989). In addition, we focus on direct, rather than indirect, exporters, since indirectexporters are often restricted in their pricing choices by export agents, and rarely dealwith the international issues which make direct exporting so complex (Nagle andNdyajunwoha, 1988). In this context, while there is evidence to suggest that pricing is akey variable affecting export performance (e.g. Bilkey, 1982; Koh and Robicheaux,1988; Kirpalani and Macintosh, 1980), most pricing research emphasizes the domesticmarket, (addressing such issues as price promotions, consumers' reaction to price, andprice-quality relationships), rather than export customers. Given that: few studies haveexamined export pricing as opposed to other aspects of pricing strategy; what littleresearch that does exist lacks strong conceptual foundations; and insights from thegeneral pricing literature have not been applied to an export context to any appreciableextent, the present article seeks to provide a conceptual framework for pricing in anexport context and link it to export performance. Specifically, the purpose of the study isthreefold. First, we identify key organizational and environmental factors specific to anexport setting that act as antecedents of export pricing strategies. Second, drawing uponthe pricing and exporting literatures as well as from exploratory interviews with exportmanagers, we develop a series of research propositions designed to link pricing strategies,contextual variables, and export performance. Finally, we make several suggestions


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regarding future research in this area and provide guidance in operationalizing keyconstructs.

In the next section, we highlight the distinct nature of export pricing decisions andprovide a brief review of past literature. This is followed by a presentation of the

proposed conceptual framework and associated research propositions. The paperconcludes with identification of future research directions.

The distinct nature of export pricing

Global marketing decisions about product; price and distribution differ from those madein a domestic context, in that environments within which those decisions are made areunique to each country Gain, 1989), and the pricing problems faced by exporters aredistinct from those faced by purely domestic firms in that variables associated with bothhome and export markets must be integrated into managerial decision making (Diller andBukhari, 1994). Distinct issues include increased competitive levels, gray market

activities, counter-trade requirements, regional trading blocs, standardization versuslocalization issues, the emergence of intra-market segments, and exchange rate volatility(Cavusgil, 1996; Cavusgil and Zou, 1994; Paun and Albaum, 1993; Samli and Jacobs,1994; Samiee, 1987). The methods which management utilize to address theseenvironmental issues must be synthesized with organizational concerns such as objectivesof the venture (Cavusgil, 1988) and market-related concerns such as market volatility anddisparate customer needs (Cavusgil and Zou, 1994), which can greatly narrow the domainof the firm's foreign market activities.

Pricing strategies are often based on the premise that the most effective strategies are notapparent until certain shared economies or cross-subsidies are evident. In his taxonomy

of pricing strategies, Tellis (1986, p. 147) states that:

... in a shared economy, one consumer segment ... bears more of the average costs thananother, but the average price still reflects cost plus acceptable profit. The use of sucheconomies may be triggered by heterogeneity among consumers.

In business-to-business exchange, the consumer is the firm, and the heterogeneity acrossthese firms is a product of economic conditions within the market as well as differentutility among buyers (see Moriarty (1983)). However, buyer heterogeneity in business-to-business exchange will be reduced relative to that of consumers for a number of reasons.Organizational buyer behavior theorists (e.g. Moriarty, 1983; Heide and John, 1990) posit

that organizational buying is distinct from consumer buying behavior in that:

(1) organizational purchases are made in group form, typically by a decision-making unit;

(2) an organizational decision to purchase must satisfy differing needs and objectives of avariety of participants;


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(3) certain types of organizational buyer information, including proposals, price quotes,and purchase contracts, add to the organizational purchase a formal dimension not foundin consumer buying; and

(4) the personal and organizational risk of a company's purchasing decision is generally

greater than that of individual consumers (see Moriarty, 1983).

Given these parameters, organizational buying is seen as more rational in nature thanconsumer purchasing, and as a result more homogeneous. When the purchasing entitiesare importers, however, heterogeneity in the pricing decision model is enhanced bydiverse economic conditions across markets (cf. Bello and Gilliland, 1997). In theseexchange relationships, information deficiency still exists, yet this deficiency enhancesproblems beyond what is experienced in domestic exchange. For instance, the searchcosts of importers compared with domestic buyers will be considerably higher (Andersonand Gatignon, 1986). Furthermore, transaction costs associated with travel, commercialrisk and capital significantly exceed that of domestic exchange (Aulakh and Kotabe,

1997). The lack of incorporating the dyadic diseconomies, or the differences in marketenvironments between the buyer and seller which are present in import-export exchange,and the omission of market-related variables, is largely responsible for our inability torely on traditional theory to explain export pricing strategies.

Examples of these dyadic diseconomies are easily made. For instance, market volatility,particularly in the form of foreign currency volatility and inflation rates, arecharacteristics of economic fluctuations, which result in risk and uncertainty in overseasmarkets (Aulakh and Kotabe, 1997). Frequent volatility of currency rates suggests thatexporters may find themselves benefiting from a weak currency one month andstruggling with an over-- valued currency the next. These exporters must be vigilant in

their pricing by concentrating on the market's ability to purchase during exchange ratefluctuations. Import policies and trade barriers in import markets have a significant effecton export pricing decisions as well (Cavusgil, 1988, 1996). Price escalation due to importbarriers may eat away at profit margins. Price-- quality relationships in overseas marketsmay also vary significantly, since all imported products may suffer from price escalation(Johannson and Erickson, 1985). The strategy options open to firms may be limited inorder to maintain affordable products for the buyer. With the increased tension betweennations over trading policies, such issues as intellectual property rights (Maggs andRockwell, 1993), non-tariff barriers (Frank, 1984), and anti-dumping legislation haveassumed considerable importance and have an obvious connection to export pricing(Joelson and Wilson, 1992). Export markets with strict price-- window regulations oftenrestrict the ability of firms to price at competitive levels (Myers, 1997) and often firmsmust satisfy local conditions by concentrating on non-price aspects of exchange, such asthe use of local or third country currencies of offering volume discounts (Weekly, 1992).

The degree of customer sophistication can also vary widely across markets (see Morrisand Morris (1990)) and, in many developing economies, customers are lesstechnologically proficient or knowledgeable regarding potential suppliers (Kotabe andHelsen, 2001). More sophisticated customers will often accept high search costs in efforts


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to locate the best price (Tellis, 1986), and are familiar with the pricing schedules ofsuppliers and will time their purchases accordingly to lock-in lower prices. Also, moresophisticated customers understand the cost structures of particular products better and,therefore, have a reference for fair price" (Nagle, 1987). Upper and lower thresholds foracceptable prices are thus more firmly established.

Given the critical nature of pricing decisions and the large number of firms that employexport marketing as an internationalization strategy, one would expect a wide range ofstudies concerning company practices in export pricing. As noted, however, relativelyfew have been conducted. According to Walters (1989), much of the work ininternational pricing concerns transfer pricing in multinational corporations (e.g. Al-Eryani et al., 1990; Arpan, 1973). Some important studies exist, however, on the effect ofan overseas market environment on pricing, on pricing in developing countries and inspecific markets, and on price controls overseas (Walters, 1989). Several pricing--decision models have resulted from research on fluctuating exchange rates, includingwork by Clague and Grossfield (1974) and Choi (1986), and the literature also includes

several qualitative models and approaches in overseas pricing situations (e.g. Farley et at,1980; Rao, 1984; Walters, 1989).

The research that does exist, however, (e.g. Clark et at, 1999; Samli and Jacobs, 1993,1994; Diller and Bukhari, 1994), supports our argument that a wide variety oforganizational and environmentally specific factors influence export pricing. Cavusgil(1988) summarizes these factors into six groups of variables:

(1) nature of the product or industry;

(2) location of the production facility;

(3) system of distribution;

(4) location and environment of the foreign market;

(5) regulatory framework; and

(6) management attitudes.

In a similar vein, Lancioni (1988) states that price setting in international markets shouldbe approached at two different levels - the external (customers, competition, government

regulations) and the internal (cost reduction, ROI levels, and sales volume requirements)- and that both must be taken into account. This is plausible, since export pricing is anintegral part of overall export strategy; indeed, exporting itself can be conceived as astrategic response by management to both internal and external forces (Cavusgil and Zou,1994). The former relate to such organizational characteristics as corporate goals, desirefor control over prices, and degree of company internationalization, while the latterinclude competitive pressures, demand levels, legal and governmental regulations, andexchange rates. The degree of alignment of these forces with the marketing strategy of


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the firm determines its performance (Aldrich, 1979; Porter, 1980). This principle suggeststhat pricing can be used as a distinct proactive strategy within the overall exportmarketing strategy of the firm. In this context, both the exporting literature (e.g. Walters,1989) and the general pricing literature (e.g. Diamantopoulos and Mathews, 1995)suggest that successful price decision making is highly dependent on the situational

variables that characterize dynamic, turbulent environments.

In summary, while managers will encounter many of the same type of market forces inthe international arena as at home, in each export market these forces have a differenteffect and a different "constellation" of components (Kublin, 1990), including specificcomponents not characteristic of domestic operations. These characteristics, discussed indetail in the following section, make pricing in export markets particularly problematicfor managers.

A conceptual framework for export pricing decisions

Both the export marketing literature (e.g. Walters, 1989) and the general pricing literature(e.g. Gabor, 1988; Morris and Morris, 1990) indicate that successful price decisionmaking is dependent on situational variables in dynamic environments. This calls for acontingency approach to export pricing, since the pricing process is far too complex to beamenable to a universal type of explanation (Diamantopoulos and Mathews, 1995). Thevariables in contingency theory (Zeithaml et al, 1988) blend well with the internal-external forces/export strategy/export performance framework of Cavusgil and Zou(1994). Contingency variables (which provide only limited or indirect opportunities forcontrol by the firm) relate to internal and external forces, response variables (those thatreflect decisions and actions taken by the firm) relate to export pricing dimensions, andperformance variables (those that represent the outcome of such action, enabling an

evaluation of fit between contingency and response variables) are accounted for by thefirm's export marketing performance. Successful implementation of EPS depends onaccurate identification of the contingency variables and the proper "fit" of pricingdecisions and actions by the firm.

A contingency approach to export pricing requires the proper identification of thesecomponents. As Hofer (1975) and Diamantopoulos (1991) show, dozens of factors canaffect pricing strategy and, including all possible variables in future empirical research,would result in highly situation-specific studies. Therefore, for present purposes, the listmust be condensed, but care must be taken to identify the most significant factorsimportant in an export setting. To pinpoint the most critical contingency variables, in-depth interviews with international managers were conducted, following the suggestionsof Bonoma (1985) and Eisenhardt and Bourgeois (1988). Specifically, 12 interviews witha diverse set of manufacturing exporters in the Midwest and Southern USA took place,utilizing open-ended questions regarding the export pricing strategies of these firms andthe factors shaping these strategies. These firms were chosen not only because of thesignificant amount of exporting conducted, but also due to the disparate markets whichthey serve (European, Asian and LatinAmerican). Firm size (as a function of sales)ranged from US$10 million to over US$500 million. In all instances, the key informant


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was the manager in charge of overseas operations for specific products or product lines.These qualitative interviews highlighted critical variables and help reduce reliance ontheoretical reasoning and past findings in the development of our conceptual framework.

This conceptual framework, illustrated in Figure 1, is designed to provide directions for

future research in determining the best pricing strategies for export marketing managers.The key constructs address the relationships between export pricing strategy and theinternal and external forces described by Tellis (1986) and extended by Cavusgil and Zou(1994). By integrating the research that links export strategy to export performance withthe research that identifies pricing strategy as a determinant of marketing performance(e.g. Rao, 1984; Tellis, 1986), we argue that export pricing strategy affects the exportmarketing performance of the firm. In turn, selected internal and external variables areseen as antecedents to the EPS adopted by the firm. These antecedents can be categorizedinto three distinct groupings, incorporating a number of specific variables each:

(1) firm and management characteristics, which include the international experience of

the firm and its commitment to the export venture;

Figure 1.

(2) product characteristics, which comprise degree of standardization and age; and

(3) export market characteristics, which include channel length, customer sophistication,regulatory and competitive intensity, foreign currency volatility, and rate of inflation.

The details of these variables and their proposed relationships with export pricing

strategy are discussed below, and specific propositions are developed. It should be notedthat in this study we address only those variables that have been frequently identified inthe literature to affect export pricing strategy, or those that were identified in ourqualitative interviews by export managers to drive their pricing decisions. These variablesare defined in Table I. We remained selective in inclusion of relevant variables, sinceexcessive detail could result in an "almost endless, and thus unmanageable, listing ofsituational variables, providing little scope for comparison and generalization acrosssettings" (Diamantopoulos and Mathews, 1995, p. 27); our concentration is only on thosefactors which make export pricing distinctive from domestic pricing.

Export pricing strategy

While export pricing is regarded by management as a strong determinant of performanceand profitability, it is perhaps the most misunderstood and least effectively usedcompetitive tool (Cavusgil, 1996). The literature does not offer any well-establishedmeasures or conceptualizations of export pricing strategy (EPS). In this study we defineEPS as the means by which a firm responds to the interplay of internal and externalforces that affect export-pricing decisions in order to meet the goals of the export venture.The construct incorporates three basic dimensions:


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(1) management's price-setting philosophy;

(2) price determination; and

Table I.

Table I.

Table I.

(3) pricing implementation.

The literature supports this conceptualization, and our preliminary interviews with

international managers confirm it. Within these dimensions lie the various alternativesavailable to the firm, including uniform pricing of products, market versus cost-basedpricing and the centralization of the pricing decision within the organization.

Export price-setting philosophy

Export price-setting philosophy refers to the guiding principles used by management inits pricing strategy. These are reflected in a variety of managerial and environmentalfactors and address such issues as the pricing objectives of management, the competitiveposture associated with export pricing, the control of the export-pricing decision withinthe organization, and the flexibility or rigidity of export-pricing procedures.

Pricing objectives. Pricing objectives are the strategic and economic goals desired bymanagement in pricing the product (Diamantopoulos and Mathews, 1995). Although theoperationalization of export marketing performance indirectly captures these objectives,here we formally operationalize them within the strategy construct. Given that pricingbehavior is purposive (i.e. seeks to achieve specific and conflicting goals), an EPSreflects not only export-- market factors but also the short- and/or long-term pricing goalsof the firm, which themselves are a subset of overall corporate objectives (Morris andMorris, 1990). In this context, from the perspective of empirical analysis,Diamantopoulos (1991) argues that comparisons of pricing strategies are not inthemselves instructive, unless differences in specific objectives pursued are taken into

account, and that the objective functions of real world firms are multi-faceted rather thansingular, "... which implies that any theoretical representation ... based on a single goal(whatever that goal may be) involves a substantial (and potentially unacceptable) degreeof abstraction from reality" (Diamantopoulos, 1991, p. 138)[1]. Moreover, the pricingobjectives of the firm are not static and will change within the export market, as suchfactors as product age and competitive levels change (Engleson, 1995).


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It is critical to determine the firm's pricing objectives before proceeding to formalexamination of export pricing (Diamantopoulos and Mathews, 1995). Morris and Morris(1990) list 21 different pricing objectives available to the firm. Following Samiee (1987),we classify them as profit (e.g. return on investment, profit growth) and competitivepositioning (barriers to entry, matching competition, maintain/increase market share).

Pricing objectives can be conflicting as well as complementary (increased market sharebrings increased profits, yet to increase market share the firm may have to experiencelosses in the short term by undercutting competitive price offers), as well as subject tohierarchical considerations regarding level of importance (see Paun and Albaum (1993)).Much of the conflicting nature in pricing objectives may be attributed to temporal issues,in that short-term objectives, from the pricing perspective, are not easily synthesized withlong-term objectives (see Guiltinan and Gundlach (1996)). Individuals involved in thepricing of exports are interested in the long-term survival of the firm, which in turn isreliant on the ability of the organization to adapt to a variety of environmental pressuresand constraints (see Thach and Axinn (1991)). The question of whether the objective ofthe firm is purely to maximize profits is further challenged in the export setting in that the

firm often adopts a satisfactory profits approach in order to justify market participationand establish longer term relationships with satisfied customers (Monroe, 1990).

Relationships between antecedent variables and export-pricing objectives have yet to beexplored in the literature, so reliance on domestic and consumerrelated pricing studies isnecessary to a certain degree. Diamantopoulos and Mathews (1994) demonstrate therelationships between a variety of antecedent variables and pricing objectives in domesticmarkets. Similarly, Nagle (1987) indicates that a number of variables (such as marketgrowth and competitive intensity) affect individual pricing objectives. Specifically, ascompetitive levels within the export market increase, the firm must price its product at ornear that of the competition in order to survive (Simon, 1995). If firms attempt to

maximize return on investment or profit growth in competitively intense environments,then competitive price margins will detrimentally affect the attainment of these goals, sothe firm must choose a price at or near that of rivals (Engleson, 1995). Pricing objectiveswill also change, as the product evolves from its introductory stage through growth andmaturity, with profit-oriented pricing being standard for new products and morecompetitive pricing being standard for mature products (Morris and Morris, 1990; Porter,1986). It should be remembered that exporters are often faced with different life-cyclescenarios in overseas markets from their domestic counterparts with the same product.Once new products become exposed to markets, competitors often enter with similarproducts and new process technologies that enable them to compete on price, whichprompts firms to re-orient their pricing policy (Monroe, 1990). This is supported bymanagerial comments during the qualitative interviews:

Our product is the same as our competitors'. The only way to compete is on price anddelivery reliability. Our effort is to maintain market share.

A number of international economic factors affect export pricing objectives, particularlyinflation and exchange rate fluctuations (Cavusgil, 1996). The underlying relationshipbetween exchange rates and the prices of traded goods, or the exchange rate pass-through


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relationship, is a critical factor in determining prices (Athukorala and Menon, 1994). Therelationship between the export market currency and the home currency of the exporterwill affect the affordability of the exported product as well as the exporter's ability toraise prices and still reach sales targets. When the exporter's currency is weak, it will beable to stress price benefits, particularly when compared with in-- market competitors.

When the exporter's currency is strong, it may resort to competitive pricing and/or engagein non-price competition by stressing quality and customer service (Cavusgil, 1988).Similarly, in preliminary interviews managers stated that high inflation rates in the exportmarket will produce a "false elasticity" effect in that, even though the exporter's quotedprices of goods do not change, effective prices will be higher. This will limit theexporter's ability to pursue profit oriented pricing objectives, since the purchasing powerof the buyers will be reduced.

Given this background, the following proposition is offered:

P1. Management is more likely to pursue competitive pricing objectives (as opposed to

profit-oriented objectives) when: the competitive intensity of the export market is high;the product is mature in the export market; foreign currency volatility is high; and theinflation rate in the export market is high.

Competitive posture. In the equations of supply and demand that influence price, thesupply side includes competing firms within the industry willing and able to sell atdifferent prices (Morris and Morris, 1990). Export markets are experiencing rapid rates ofchange, as technology, governmental regulations, and economic foundations shift(Simon, 1995). Often, this increases the differentiation across markets (see Sheth, 1985),while within a particular market the customer base is fairly homogeneous and serviced byseveral sellers with specialized technologies. When buyers are homogeneous, product

differentiation becomes less critical, and sales are based on competitive prices (Tellis,1986). This mandates constant monitoring of the competition's prices, and a philosophyof using price as a competitive tool. Price is determined solely on competitive moves;here exporters charge a price roughly equivalent to that of competitors. Complicationsarise if local competitors (i.e. those from the export market) remain unaffected byeconomic or regulatory shifts within that market, shifts which affect the exporter's priceand not the local competition's. This is considerably different from domestic competitiveenvironments where each competitor is affected by the same economic changes, as is thebuyer. In our preliminary interviews, exporters indicated that this was often the case:

We base our prices on what our competition is doing, and try to keep a specified amountabove or below the competitor's price.

We base our prices on the competition's, and change the price as often as every order.Our price is either just below our competition's, or it is exactly the same, never above.Our distributor tells us what [the competition's] price is, because we've had a longrelationship.


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International experience is positively related to export performance (Kirpalani andMacintosh, 1980) and, since pricing is a key factor in a firm's overall marketing strategy,the perception of export pricing as a competitive tool will be partly determined by thefirm's experience in international markets and its emphasis on price versus non-pricebenefits. In addressing the characteristics of the finn, Katsikeas and Morgan (1994) found

that more experienced firms perceive export-pricing activities as more problematic thanless experienced firms, and that firms of all experience levels rank pricing issues veryhigh in their export decisions. More experienced firms seem to realize the complexity ofpricing and are willing to address it deliberately in formulating a competitive posture.

According to Guiltinan and Gundlach (1996), firms can enact predatory pricing strategiesthat involve lowering prices to an unreasonably low or unprofitable level in order toweaken, eliminate, or block the entry of a rival, and this obviously deviates fromtraditional profit maximization objectives. Several motivations for low or below costpricing exist, including volume sales and market share. Pricing that is designed to achievelong-term customer satisfaction or other volume-oriented objectives can be profit-

oriented, because short-term profits may be traded for long-term gains (Guiltinan andGundlach, 1996, p. 90). However, firms seeking these long-term gains must becommitted to the venture to a degree that warrants these short-term losses; otherwisethese losses cannot be recovered over time.

The degree of importance management attaches to price as a competitive tool depends onwhether the firm seeks competitive advantage by offering its customers a less expensiveproduct than that of rivals or a differentiated product (Nagle, 1987). A firm offering acomparable product at a lower cost can increase sales via opportunistic pricing, but thisadvantage can only be maintained if costs can be controlled (Monroe, 1990). One methodof controlling costs is by standardizing products, and firms that emphasize non-price

benefits to the customer may not perceive price as a competitive tool. A superior productoften enables the firm to profit from premium prices (Porter, 1986). Following the workof Jain (1989), the presence of heavy competition in the market may necessitatecustomization of export products. When this is not possible, however, the firm will be leftto compete on price and other aspects of the marketing mix.

A weak exporter's currency will enable that firm to utilize price as a competitive tool.Those with weak domestic currencies often use price to build market share and combatcompetitors (Kotabe and Helsen, 2001). On the other hand, firms exporting to countrieswhere the currency is depreciating face greater need to remain competitive in pricing(Cavusgil, 1988). Similarly, those export markets suffering from high inflation areconducive to using price as a competitive tool, since the importer is already burdened byincreasing costs of goods manufactured in the export market, and the exporter can pricehis goods below local competitors with little effect on its own profit margins (Myers,1997). This allows him to use price as a competitive tool. All this suggests:

P2. Management is more likely to use price as a competitive tool when: the competitiveintensity of the market is high; the international experience of the firm is high;


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commitment to the export venture is high; product standardization is high; and foreigncurrency volatility is high.

Decision control. The level within the organizational hierarchy at which the pricingdecision is made plays a critical role (Abratt and Pitt, 1985; Clague and Grossfield,

1974). Who is responsible, or the degree of price-setting autonomy outside uppermanagement, is a key determinant of an export pricing strategy (Baker and Ryans, 1973).The salesforce tends to concentrate on competitive factors that affect sales volume, whilemanagement usually is concerned with profit margins above the total cost of the product(Myers, 1997).

As noted, the sophistication of buyers in the export market will often differ drasticallyfrom domestic customers (Kotabe and Helsen, 2001). Thus, exporters must deal withdifferent levels of customer sophistication in each market. Preliminary interviewsindicate that, as customer sophistication increases, the ability of the salesforce todetermine the actual end-price of the product becomes critical. This point-of-sale decision

making increases the firm's responsiveness to well-informed customers (Anderson, 1985)and, while sales force personnel are rarely aware of the changing costs of input prices(Grove et al., 1992), more sophisticated buyers demand the service that a saleforceprovides, including the ability to make on-the-spot price decisions in order to meet buyerneeds. Sophisticated customers are also more likely to have price objections, and theseobjections are best addressed by the salesforce personnel (Winkler, 1983), meaning thatdecision control is better left to the individual closest to the point of sale.

In the domestic marketing literature, the effect of channels and distribution processes onpricing decisions has received extensive attention (Stem and El-- Ansary, 1977). In theinternational environment, however, relatively little empirical work has been reported.

An exception is Williamson and Bello (1992), who examined export managementcompanies (EMCs) and the pricing methods used in transactions between EMCs anddomestic producers. Following this study, it is evident that the services offered within thechannels in overseas markets, as well as the complexity and development of thosechannels, also will influence pricing strategy. Lengthy and dynamic internationaldistribution channels are susceptible to export-price escalation (Cavusgil and Zou, 1994);without in-market or close-to-market decision making, the possibility of overpricingexists. Exporters must maintain price levels in markets where the large number ofmiddlemen in the distribution channel often forces prices above competitive levels(Kotabe and Helsen, 2001). Control over the final price often decreases, as the producttravels though the distribution channel, depending on the relationship between thechannel members and the exporter (Bowersox et al., 1992). Price decision control willtherefore be less centralized in order to control price escalation inside the market. Thisunderstanding of added in-market price by lower level management increases the firm'sability to combat this escalation (see Cavusgil (1988)).

When faced with external uncertainty, firms are better off internalizing transactions andallowing the absorption of uncertainty through specialized decision making within thefirm (Aulakh and Kotabe, 1997). Pfeffer and Salancik (1978) argue that looser, flexible


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structures are more effective under conditions of high external uncertainty: this ability torespond to uncertainty is facilitated through salesforce autonomy. External uncertainty, ofcourse, can take the form of competition or volatile economic conditions in the exportmarket. High competitive intensity in the export market increases the need for quickdecisions, dictating a fluid and simple pricing method by those familiar with the market

and the customer (Engleson, 1995). This is possible only if lower-level managers andsales representatives are given autonomy. Concurrently, they must be familiar withcustomers, distributors, and competitive levels within their area of responsibility(Winkler, 1983), a familiarity that results from significant exposure to the export market.For the same reasons, markets with volatile fluctuations in exchange rates or thosesuffering from inflation problems will necessitate local pricing control, with close tomarket decision makers changing prices as currency fluctuations and inflation ratesmodify the purchasing ability of buyers. Thus:

P3. Control of the export-pricing decision by high-level (headquarters) management ismore likely to increase when: customer sophistication is low; the distribution channel is

short; foreign currency volatility is low; the inflation rate of the export market is low; andcompetitive intensity within the export market is low.

Pricing flexibility. Pricing flexibility is defined as the willingness to change prices basedon special circumstances, versus rigidly enforcing a set price. Traditionally, the practiceof an annual pricing review has been consistent with the literature (Diamantopoulos andMathews, 1995), which posits that prices should be changed no more than once a year, sothat customers can make their own costing and pricing plans (Garda, 1984). This policy,however, can create problems for the firm such as forward buying by distributors whoanticipate the review; and failure to effectively "pass through" exchange-rate inducedmargin changes in export market currency terms (Cavusgil, 1996; Clark et al., 1999).

With the increasing competitive intensity of global markets, it is imperative to be moreflexible, to change prices based on special circumstances, such as competitive price shiftsand currency rate changes. Economic fluctuations will affect the purchasing power ofbuyers, particularly as foreign currency valuations between the buyer-seller dyad change(Piercy, 1981). Therefore, in order to maintain sales volume firms must be flexible insetting prices. It is apparent from managerial responses that economic volatility in theexport market plays a significant role in pricing activities:

The conditions in our markets are constantly changing. Overnight we can be priced out ofthe market, because our products become too expensive. Unless we change our priceaccording to the Peso, our buyers can't afford our products.

The inflation rates in our market [Brazil] are often so out of hand that we change ourprices every month.

Unauthorized distribution is a big problem. When currency rates fluctuate a lot, weinevitably will find our buyers going next door [to another market] to buy our productfrom a cheaper distributor. While we have a smooth relationship with our importer, we


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know that he is very familiar with our cost structure and, that if we raise prices too high,he will attempt to find another supplier.

Farley et al. (1980), who analyzed marketing decision systems within two Europeanindustrial firms, report that prices and volumes of each product were under continuous

review, since conditions constantly changed in many end-use markets. Throughforecasting, firms develop ongoing systems for both volume planning and pricing; thesefeedback systems are triggered by perceived changes in market conditions (Engleson,1995), and these changes take several forms. As competitive levels fluctuate within amarket, exporters must constantly monitor their prices in relation to the prices andofferings of competitors (Cavusgil, 1988). Volatile exchange rates also affect theexporting firm's need to occasionally change prices (Cavusgil, 1988). Firms exporting tomarkets where the currency widely fluctuates must examine their pricing policyfrequently. Similarly, high inflation rates in the export market will necessitate frequentreview of prices. As is evident from the managerial responses, inflation rates can rapidlyerode the ability of buyers to pay export prices, and firms will have to reduce prices

according to levels of in-market inflation fluctuation. Therefore:

P4. Management is more likely to use flexible than rigid pricing when: the competitiveintensity of the export market is high; foreign currency volatility is high; and the inflationrate in the export market is high.

Export-pice determination

Export-price determination refers to the specific methods employed to calculate andachieve the final price. Many methods are available, since managers need more than oneoption for pricing various products in various competitive environments. A wide range of

organizational and environmental factors affect the methods) used:

Specifically, it has been established that the more sophisticated pricing formulae aretypically used by large firms ... It has also been observed that pricing methods vary acrossdifferent industry sectors, product types, and production and distribution methods(Diamantopoulos, 1991, p. 151).

We will concentrate on the methods considered strategically manipulable by the firm;that is, monopsonistic pricing will not be included in our discussion.

Price determination can be broadly categorized into two groups:

(1) methods that are cost based (i.e. cost-plus and marginal-cost pricing); and

(2) market based (i.e. market, trial-and-error, penetration, and value pricing). The market-based approaches focus on competition, customer demand, or both (Morris and Morris,1990). Of these two categories, cost-based pricing appears to be much more prevalentMonroe, 1990):


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This tendency is one of the great ironies of business, and reflects a general level ofnaivete among managers responsible for pricing decisions (Morris and Morris, 1990, p.22)[2].

Cost-based versus market-based export pricing. According to Cavusgil (1988), product

and resource costs influence the pricing strategies of the firm. Costs are frequently usedas a basis for price determination, largely because they are easily measured and provide a"floor" under which prices cannot go in the long term (Simon, 1995). Most exportingcompanies focus on a cost-centered pricing strategy, particularly the cost-plus method(Hunt, 1969; White and Niffenegger, 1980). According to Backman (1953, p. 148), "thegraveyard of business is filled with the skeletons of companies that attempted to basetheir prices solely on costs." Given that firms must also focus on two other key aspects ofprice: demand and competition (Monroe, 1990), which are particularly complex ininternational environments, this observation is especially ominous to exporters. Thepopularity of cost-based strategies reflects the fact that they are easy to implement andmanage; setting a price that covers costs and generates a fixed profit margin makes

intuitive sense to the manager (Morris and Morris, 1990). Often, exporters will simplyplace the same price on their exported products as that of those sold domestically (Seifertand Ford, 1989).

Cost-based pricing strategies are indicative of profit-oriented firms, often with short-runexpectations within the market (Cavusgil, 1996). This is similar to a "skimming" strategy(Monroe, 1990), yet, while the motives of profit-taking firms may be the samedomestically as internationally, the opportunities which allow these firms to profit oftenfind a different genesis in that exporters benefit from the cross-market dyadicdiseconomy which allows them to take profits in times of economic fluctuations betweenmarkets. These are opportunistic firms that take advantage of market inefficiencies such

as monopolistic structures or new technologies within the export market (Myers, 1997).The objectives are shortterm. Price is determined by strict cost-plus or marginal costprocedures, with little interest in market, customer or competitive factors. This is evidentin many of the responses from managers when asked to describe their pricing methods:

Our price is based on the domestic price. We typically price our products based on astandard percentage mark-up. We will until our profits decrease.

Our prices are based primarily cost-plus or 30 percent off suggested retail. We do this inevery market because we haven't seen any reason to adjust our approach.

We move in and out of a variety of markets, and price our products as high above costsfor as long as we can. When profits begin to decline, we move on to other markets.

Our prices, both domestic and export, are based on cost plus added amount for profitmargin. No special pricing for our exports.

Despite the prevalence of a cost-based perspective to pricing exports, there is analternative. By incorporating market, competition, and customer related variables into


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their pricing decisions, exporters can address a number of potentially confounding issues.This market-based pricing is particularly critical, given the discussion on environmentaldeterminants of pricing in an international environment, and it is at times difficult tounderstand why exporters do not incorporate these variables into their pricing strategies.In our contact with export managers, however, several indicated that this strategy is the

foundation of their pricing efforts, and for a number of critical reasons:

With our exports, we are continuously under suspicion of dumping our products. Wehave to take care not to violate the local regulations on this issue, and ... we have tocompete on service, not price.

We develop a base price acceptable to our distributors. Deviations are made based onspecific situations in the market, such as new import taxes and volume limitations.

Based on governmental procedures, we must sell our product at a higher base price to ourforeign customers. We try to remain price-competitive in our terms of trade.

We have to manipulate our prices based on what the import regulations let us do, andthey are constantly changing. If we have to price above our local competitors, then we tryto offer volume discounts or work with the buyer in their currency of choice.

Pricing methods such as penetration pricing are based on the market, and focus on thecustomer and/or competition (charging a price roughly equivalent to that of competitorsor what the market will bear). In more price-sensitive markets, strategies based on thedemand and competitive dimensions of the market are considered to be more suitablethan cost-based pricing (Morris and Morris, 1990). Piercy (1981) found that certain UKexporters price according to the individual target market, almost two-thirds emphasize a

market-based approach, due to the price focus of competitors. Intense competition oftendictates market pricing (Diamantopoulos, 1991), and firms involved in highlycompetitive export markets often have little price discretion, as what they can charge willbe established by the market, especially if they are not a market leader (Engleson, 1995).

Import policies and trade barriers in international markets have a significant effect onexport-pricing decisions. Price escalation due to import barriers may eat away profitmargins (Cavusgil, 1996). With the increased tension between nations over tradingpolicies, such issues as intellectual property rights (Maggs and Rockwell, 1993), non-tariff barriers (Frank, 1984), and antidumping legislation have assumed considerableimportance and have an obvious connection to export pricing (Joelson and Wilson, 1992).

For example, antidumping laws regarding specific products will affect pricing decisions,since the simple cost-plus method may result in a price too low to comply with marketregulations. Export markets with these price-window regulations dictate market pricing.Caught between high base costs and the need to charge break-even prices, firms oftencannot compete in highly price-sensitive markets.

Some buyers will have a low reservation price for the product in that they are price-sensitive or do not need the product urgently enough to pay the price other buyers pay


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(Tellis, 1986). Economic and behavioral foundations within the market affect customerreactions to price and, with sophisticated customers, i.e. those aware of potentialalternative suppliers and prices, exporters face increased challenges in that customers willhave search costs exceeding those within the market (Cavusgil, 1996). This means thatthe opportunity costs associated with finding an overseas supplier may exceed the

benefits associated with that relationship (Anderson and Gatignon, 1986). Transactioncosts associated with investment risk, currency exchange, or switching costs also factor into the buyers' decisions (Williamson, 1975). Mostly, however, firms employing a market-based EPS focus on the customer's ability to pay for the goods, or the value placed onthat good, or both. This perspective is evident in several comments made by exportmanagers:

Price is always based on the individual customer. They request certain sizes, colors, etc.,then we price based on the information they provide us.

We have to constantly watch the exchange rates. If the dollar gets too strong, our buyers

will go to local suppliers. Information from our agents and meeting with our overseascustomers allow us to constantly monitor the market.

Within the literature, studies show that external uncertainty allows negative informationasymmetries to develop and provides the opportunity for outside forces to behaveopportunistically (Klein et al, 1990). In export markets, external uncertainty exists in theform of economic fluctuations, particularly in volatile exchange relationships and risinginflation rates. Those exporters with weak home-country currencies often use price tobuild market share and combat competitors. On the other hand, firms exporting tocountries where the currency is depreciating face greater need to remain competitive inpricing (see Kublin, 1990).

Frequent volatility of currency suggests that exporters may find themselves benefitingfrom a weak currency one month and struggling with an over-valued currency the next.These exporters must be vigilant in their pricing by concentrating on the market's abilityto purchase during exchange rate fluctuations, understanding that cost-based pricingtechniques can send the price of the product above the purchasing ability of the buyer, orresult in lost opportunities if prices are not adjusted accordingly (Assmus and Wiese,1995). High rates of inflation in the export market will also urge managers to remainmarket-oriented in their pricing, because the buyer's ability to purchase in periods ofincreasing inflation rates will limit his ability to purchase products from overseas, due tohome currency devaluation (see Knetter (1994)). Therefore:

P5. Management is more likely to use market-based than cost-based export pricing when:the competitive intensity of the export market is high; customer sophistication is high; theregulatory intensity of the export market is high; foreign currency volatility is high; andthe inflation rate in the export market is high.

Export pricing impLementation


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Day-to-day price management involves tactical moves that allow the firm to combat ortake advantage of anomalies within the export market. Export pricing implementationcomprises the degree of coordination the firm seeks in pricing across markets and thechoice of currency used in price quotations.

Price coordination. Within the international environment, a great deal of pressure is beingplaced on firms to align or coordinate their prices (Diller and Bukhari, 1994). One of theprimary reasons for this pressure is gray market imports. Defined as selling trademarkedproducts through channels not authorized by the trademark holder (Myers, 1999; Duhanand Sheffet, 1988), gray marketing is in effect a type of arbitrage brought about byinflexibility in the face of price and exchange-rate fluctuations across markets. Thevolume of gray market imports is significant, particularly in premium products andbrands (Assmus and Wiese, 1995; Cavusgil and Sikora, 1988). The situation sometimesresults from the unavailability of goods in certain markets and the ease of productmovement across borders, but most often the cause is a substantial price differencebetween or among national markets (Myers, 1997). The problem is aggravated, as the

firm's presence in economically diverse markets increases and as the margin betweenprices in domestic and adjacent markets tempts unauthorized sellers to cross borders andsell products at higher prices than at home (Assmus and Wiese, 1995). Firms attempt tocoordinate their product prices uniformly across all markets in order to curtail graymarket imports. This approach is difficult, however, when inflation or devaluation oflocal currency results in prices beyond the purchasing power of indigenous customers butnot those in a neighboring economy.

Customer satisfaction can be better met by adapting the product to an individual market(Douglas and Craig, 1989), but the costs of adaptation and the advantages gained willinfluence the export price of the product (see Samli and Jacobs (1994)). The

standardization/adaptation issue has long been debated in terms of market coverage,capacity utilization, specialty products, and market niches (Samiee and Roth, 1992).Product adaptation incurs costs in developing alternative variations (Cavusgil et al.,1993), and these must be reflected in the export price. Managing a series of adaptedproducts in multiple markets calls for pricing decisions to be made close to thosemarkets, which decreases the effectiveness of a pricing coordination strategy.Concurrently, sophisticated customers familiar with competitive prices and experiencedin purchasing will demand quick pricing decisions at the market, not upper--management, level. Thus:

P6. Management is more likely to seek price coordination across its export markets when:foreign currency volatility is high; and product standardization is high.

Currency choice. With an increase in the global sourcing of raw materials, components,and other products by firms, exporters are increasingly compelled to price their productsin non-domestic currency denominations (Samiee and Anckar, 1998). The choice ofcurrency, then, has become increasingly critical in securing export contracts, as well asmaintaining or increasing export market share (Samiee and Anckar, 1998; Donnenfeldand Zilcha, 1991)[3]. The currency a firm chooses to use in its export transactions is


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determined by a number of variables. Along with product cost, the degree and caliber ofcompetition are perhaps the most important factor (Abratt and Pitt, 1985), and mostcompanies will adjust price or other elements of their total offer in order to meetcompetitive situations (Farley et aL, 1980; Lecraw, 1984). This means that flexibilityregarding the currency used for the transaction is critical to remaining competitive. In

many cases the exporter has no choice but to offer currency terms comparable with thoseof competitors (Diamantopoulos and Mathews, 1994; Piercy, 1981). This is evident in thestatement of an exporter of machinery to Latin America:

In highly competitive markets, we'll price our goods in whatever currency the customerwants.

This is consistent with past studies (e.g. Javaid, 1985) that, in highly competitive marketsthe buyer's negotiating position improves, and exporters are faced with increasingdemand to invoice importers in their domestic currencies.

In their recent study of currency choices among firms, Samiee and Anckar (1998) notethat firms dealing in currencies other than their domestic currency face greater financialrisks. Greater involvement and experience in exporting afford the firm better knowledgeof markets, customers, and risks involved in dealing with local currencies. Asmanagement develops more skill with complex exchange rates, it can price exports invarious currencies, as dictated by the customer. Experienced exporters are inclined to usecurrencies other than that of their home market in their trading (Cavusgil, 1988). Also, inmarkets with high foreign currency volatility, the exporter may be forced to choosecurrencies other than those customarily used (e.g. Bilson, 1983), making it easier for thebuyer to purchase products with more affordable, or available, currencies. Therefore:

P7. Management is more likely to use third-country and/or indigenous customercurrencies in export pricing when: the competitive intensity of the export market is high;the international experience of the firm is high; and foreign currency volatility is high.

The relationship between EPS and export Performance

Aaby and Slater (1989) show that an export marketing strategy and management's abilityto employ it determine export performance. When this strategy is aligned with the exportventure as defined by the characteristics of the firm, product, industry, and export market,positive performance can be expected (Anderson and Zeithaml, 1984; Venkatraman andPrescott, 1990). Consistent with Cavusgil and Zou (1994), export performance is

conceived at the product-market level, and it incorporates both economic (e.g. sales andprofits) and strategic (e.g. competitive response, market expansion) outcomes in themarket. Accordingly, export marketing performance refers to the extent to which a firm'seconomic and strategic outcomes are enhanced when selling a product in a foreignmarket[4].

As noted, the use of purely cost-based pricing strategies has been associated withsubstandard firm performance. Managers who see pricing as no more than a mark-up


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over costs may price the product out of the market. This is particularly true ininternational environments, where rapidly changing market conditions can result in priceincreases beyond the control of management (Myers, 1997). Furthermore, White andNiffenegger (1980) found that pricing decisions are centralized in firms using cost-basedstrategies, which implies a degree of rigidity and inertia in adapting to market changes

and the lack of an organized market research program.

Several authors (Douglas and Craig, 1989; Quelch and Hoff, 1986; Walters and Toyne,1989) have described competitive pricing strategies as one way in which firms can adaptofferings to fit the demands of foreign markets. This theme of increasingly competitiveexport environments is prevalent within the international marketing literature, andfollowing this perspective it is expected that export performance is positively influencedby competitive export pricing. Similarly, and following Porter (1980, 1986) and Ohmae(1990), among others, an increasingly competitive and dynamic international businessenvironment will reward flexible and responsive marketing strategies rather than morestatic practices. This flexibility calls not only for a change in traditional pricing

philosophy but also for frequent pricing policy reviews to monitor market and competitorconditions. A competitive environment mandates a focus on customers' satisfaction andtheir desire for the use of certain currencies in transactions. As international businesstransactions increase world-wide, customer sophistication will also increase, dictating amore buyer-oriented approach to marketing export products (Kotabe and Helson, 2001).This mandates greater autonomy of pricing decisions within the salesforce and otherentities close to the point of purchase, and less centralization of upper-level managementpricing decisions.

Finally, as firms proactively or reactively enter multiple export markets to enhance theircompetitive position, the issue of gray market imports must be addressed (Assmus and

Wiese, 1995). The rapid influx of businesses exporting to multiple markets (Aaby andSlater, 1989), and the demand for increased sales volume to take advantage of scaleeconomies (Porter, 1980), will mandate greater vigilance in coordinating prices to avoidunauthorized imports. The greater the coordination, the greater the profits enjoyed by theexporting firm. The exploratory interviews also revealed some relevant insights on thechoice of invoiving currency. While most managers avoid using importer or third-countrycurrencies, some companies tolerate greater risk in order to gain competitive advantageover rivals. The ability to utilize multiple currencies also affords the firm some flexibilityby proactively managing exchange rate shifts (Samiee and Anckar, 1998). Plus, asoverseas buyers increase their understanding of cross-national trade, they may becomeless willing to bear currency risks themselves, particularly in highly competitive markets,where exporters must diligently protect key accounts from other firms. A willingness toinvoice in currencies other than the exporter's only increases the chance of enhancingcustomer portfolios and increasing sales. All this suggests:

P8. Performance of the export market venture is enhanced when: the firm's use of price asa competitive tool is high; the use of market-based pricing is high; the degree of seniormanagement control of pricing is low; the degree of price flexibility is high; the degree to


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which management seeks price coordination across country markets is high; and the useof customer-preferred currency in pricing is high.

Conclusion and directions for future research

Traditionally, many firms have treated the pricing of exports as an afterthought.Similarly, researchers have considered export pricing a minor aspect of overall pricingstrategy. How pricing enhances the competitive positioning of a product or the economicsuccess of an export venture has yet to be explored, despite general agreement that it is acritical component of an export marketing strategy. Today, managers must take a moresystematic and proactive approach to setting prices for export markets, due to anincreasingly competitive global environment, a need for expansion into foreign marketsto augment market share and economies of scale, complex government regulations world-wide, and gray market considerations.

This article sets the stage for a more analytical and deliberate approach to export pricing

by:

* identifying relevant variables as antecedents to an EPS and developing a conceptualframework for addressing their relationship to export performance; and

* advancing research propositions that should allow empirical tests of these relationshipsin future research.

From a policy standpoint, the evaluation of both external environmental factors andinternal organizational characteristics, as initially described by Cavusgil and Zou (1994),is critical for managers exporting to overseas markets. They must understand that an EPS

is determined by a dynamic set of variables and that a successful venture requiresthoughtful and timely response to constantly shifting economic, competitive andcustomer-related forces.

Future research can advance knowledge of export pricing in at least two ways. First, ourconceptual framework identifies a number of antecedent variables in the relationshipbetween pricing strategy and performance. Yet, the list of situational factors involved indecision making is almost endless (Achrol et al., 1983). We have limited our attention tothose considered most relevant in an export context in order to create a generalizable andmanageable framework, but future studies may indicate others or a different emphasis.Second, we have concentrated solely on the structural aspects of export pricing to upper-

and midstream customers in the value chain rather than to end-users. Future work couldfocus on export prices from the perspective of ultimate customers.

At the operational level, research is needed on the complex interrelationship betweenexport pricing and performance as well as on the extent to which management strategychoices and pricing practices are responsible for firm performance. Our study hasprovided a foundation for exploration of:


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* "best" practices in export pricing;

* the role of the firm, product, industry, foreign market, and other environmental factorsin setting EPS; and

* how managers should make decisions about export pricing.

It is hoped that scholars will respond to the call for more work in this important area. Inthis context, Table I presented a list of relevant constructs, suggested measures, andsupporting literature. Empirical research along these lines would give us a morecomprehensive picture of the export-pricing environment and allow a more exactevaluation of the relationship between EPS and performance.

[Footnote]

Notes

[Footnote]

1. Much of the discussion regarding pricing objectives of the firm is based on the work ofDiamantopoulos (1991), whose analysis and discussion of this complex area are by farthe most comprehensive within the management-oriented pricing literature (see alsoDiamantopoulos and Mathews (1995, pp. 48-61)).2. Here we view cost-based and market-based export pricing to be dichotomous variables.While market-based pricing does often incorporate cost factors in price determination, itis distinct in that market and customer related issues drive the determination of price.Costbased pricing is driven solely by the underlying costs of the product.3. When discussing the effects of foreign currency volatility on export pricing strategies,

we follow the work of Mathur and Loy (1984) and assume that the efficiency of the firmis not such that currency pass-through problems are alleviated through the use of foreigncurrency futures and other strategies.

[Footnote]

4. This article posits that EPS is determined by internal forces, such as firm and productcharacteristics, as well as external forces, such as industry and export marketcharacteristics. EPS mediates between these forces and export performance; it partlydetermines the success of the venture. A significant amount of research has shown,however, that several direct effects between internal/external forces and performance canbe expected. Cavusgil and Zou (1994) found that international competence, managerialcommitment, and the marketing decision variables have a direct effect on exportperformance. Studies of export pricing also indicate that international competence andmanagerial commitment will directly affect performance. Similarly, in the strategyliterature, environmental uncertainty (the degree of dynamism and unpredictability) hasbeen shown to affect performance (Miller and Droge, 1986; Zeithaml et at, 1988). Sincethis paper concentrates on the EPS of the firm, we do not include these linkages in theframework; however, it is understood that these relationships do exist.


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