Notes on International Marketing: Global Pricing Strategies

International Marketing: Global Pricing Strategies

Overview

  • Course: MKTG 467: International Marketing

  • Instructor: Professor James Agarwal

  • Institution: Haskayne School of Business, University of Calgary

  • Copyright: Fall 2025

Global Pricing Strategies

Global Pricing Framework

  • Analytic Dimensions: A comprehensive structure for analyzing pricing strategies in an international context.

    • Company Internal Factors: Factors that originate from within the company that influence pricing decisions.

    • Profitability Factors: Key objectives regarding profitability.

      • Market share

      • Return on investment (ROI)

      • Profit

      • Rapid recovery of product development costs

    • Cost Considerations:

      • Transport Costs: Expenses related to shipping goods.

      • Tariffs: Taxes imposed on imported goods that can affect pricing.

      • Taxes: Government levies impacting overall costs.

      • Production Costs: Costs incurred in manufacturing products.

      • Channel Costs: Expenses involved in distribution channels.

    • Market Factors: Conditions present in different markets that influence pricing decisions.

    • Income Levels: Varying income levels across countries or market segments that affect consumer purchasing power.

    • Competition: Price and cost cutting pressures driven by market competition.

    • Critical Pricing Decision Questions:

      • Does the price reflect the product's quality?

      • Is the price competitive given local market conditions?

      • Should the firm pursue market penetration, market skimming, or another pricing objective?

      • What types of discounts and allowances should be offered?

      • Should prices vary by market segment?

      • What are the pricing strategies available if costs fluctuate?

      • Assessing demand elasticity in the international market.

      • Potential perceptions of prices as reasonable or exploitative by host-country governments.

      • Implications of foreign country dumping laws.

    • Environmental Factors: External economic conditions and regulations impacting pricing.

    • Foreign Exchange Rates: Fluctuations in currency values affecting pricing.

    • Inflation Rates: Often caused by increased money supply or currency devaluation, potentially impacting costs and prices.

    • Price Controls: Regulations imposing ceilings or floors on prices.

    • Regulations: Such as restrictions on profit repatriation or limits on funds for imported materials.

Decision Making

  • Pricing Strategies: Various approaches to achieve profitability objectives:

    • Market Skimming Pricing: Setting high prices initially then lowering them over time.

    • Penetration Pricing: Low pricing strategy to gain market share quickly.

    • Companion Products Pricing: Pricing strategy based on products that enhance each other's value.

    • Target Costing Approach: Setting prices based on expected costs and target profitability.

    • Cost-Plus Pricing: Adding a fixed percentage to the production cost to determine price.

    • Export Price Escalation: Consideration of higher leveled prices due to export-related costs.

Managerial Issues

  • Transfer Pricing: Pricing of products or services sold between subsidiaries or divisions of the same company.

  • Foreign Currencies: Considerations and challenges when dealing with currencies outside the home country.

  • Parallel Imports/Gray Markets: Unauthorized sales of trademarked goods across different markets, which can pose various challenges and opportunities.

    • Gray Market Costs:

    • Dilution of exclusivity

    • Free riding by consumers on lower prices

    • Damage to channel relationships

    • Undermining segmented pricing strategies

    • Issues with reputation and legal liability

    • Gray Market Benefits:

    • Incremental sales not captured through normal channels

    • Addressing supply constraints

    • Market intelligence insights

    • Competitive necessity during market fluctuations

    • Price Coordination: Strategies to maintain price consistency across different markets.

    • Dumping: Selling goods below cost in foreign markets to gain market share, potentially leading to legal scrutiny.

    • Price Fixing: Illegal practice where competitors agree on prices instead of competing.

Types of Risks in Global Pricing

  • Commercial Risk: Potential financial loss in international transactions.

  • Transfer Risk: Risk that currency devaluation impacts transfer pricing between subsidiaries.

  • Political Risk: Potential for political instability impacting business operations.

  • Foreign Currency Risk: The risk associated with foreign exchange fluctuations affecting revenues and costs.

    • Transaction Risk: Risk of currency fluctuations affecting the value of foreign invoices.

    • Competitive Risk: Risk posed by competitors' pricing strategies in foreign markets.

    • Market Portfolio Risk: Broader risks affecting the valuation of investments across multiple markets.

Sources of Financing International Transactions

  • Commercial Banks: Financial institutions providing loans and financing options for international trade.

  • Governments: Potential sources of funding through grants or loans for international expansion.

  • Non-cash Transactions: Types of arrangements that do not involve traditional currency exchange:

    • Counter-trading: Bartering goods and services instead of direct monetary transactions, which can include various arrangements like parallel trading, buyback agreements, and switch trading.

References

  • Source cited: Antia, Kersi D., Mark Bergen, and Shantanu Dutta (2004), "Competing with Gray Markets," MIT Sloan Management Review, Vol. 46, No. 1, pp. 63-69.