Pricing for International Markets

Introduction

• Pricing for International Markets

• Prepared by Dr. Mavis Gutu

• Contact: M.Gutu@napier.ac.uk

Learning Objectives

• Discuss issues affecting international pricing decisions

• Evaluate different strategic options for pricing across international markets

• Analyze key considerations in developing international pricing policy

• Identify solutions to pricing problems in high-risk markets

Importance of Pricing

• Pricing influences three main factors:

  • Profit: Revenue generated minus costs

  • Revenue: Total income from sales before costs

  • Cost: Includes product, promotion, distribution, and other factors such as physical evidence, people, and process involved in delivering a service

Factors Influencing International Pricing Decisions

Company and Product Factors

• Corporate and marketing objectives

• Firm and product positioning

• Product range and life cycle

• Substitute products and product differentiation (Unique Selling Propositions - USP)

• Cost structures including:

  • Manufacturing process

  • Experience effect and economies of scale

  • Taxes and production costs

• Marketing and product development resources

• Inventory management

• Channel costs (e.g., shipping, rail, air)

Market Factors

• Consumer perception, expectations, and willingness to pay

• Adaptation needs for product and promotional strategies

• Market structure and distribution channels

• Market growth and demand elasticity

• Credit considerations and competitive strategies

Environmental Factors

• Government influences including price controls and taxes

• Currency fluctuations and exchange rates

• Economic conditions (business cycle stage and level of inflation)

• Non-money payment options and leasing influences

Specific Export Costs

• Additional costs faced during exporting:

  • Freight handling

  • Last-minute product modifications

  • Specialized packaging and labeling

  • Documentation

  • Insurance and customs clearance delays

Cost Escalation through Exporting (Highlighting Key Cost Components)

Developing Pricing Strategies

Setting a Price

1. Cost-Oriented Approaches

   • Focus on achieving a specific return or early cash recovery.

2. Market-Oriented Approaches

   • Aim for competitive stability, market penetration, or maximal profitability.

3. Competition-Oriented Approaches

   • Strategies to maintain market position and prevent new competitors.

Pricing Techniques

• Rate of return analysis

• Market stabilization strategies

• Demand-led and competition-led pricing

• Product differentiation

• Market skimming and penetration

• Early cash recovery strategies

Case Study: Uniqlo Pricing in Different Markets

• Price ranges:

  • Europe: Avg. item price - USD 41.00

  • USA: Avg. item price - USD 38.00

  • Japan: Avg. item price - USD 29.00

Grey Markets

Definition

• Grey marketing occurs when trademarked goods are sold through unauthorized channels, complicating coordinated marketing strategies.

Problems in Multi-National Pricing

Coordination Issues

• Need for governmental and legal assistance

• Challenges in centralization and formalization of strategies

• Economic measures impacting transfer pricing

Transfer Pricing Strategies

• Bases for transfer:

  • At cost

  • At arm’s length

  • At cost plus

• Transfer pricing used strategically to manage market entry barriers and tax liabilities

Foreign Currency Transactions

Currency Quotation Decisions

• Should prices be quoted in local or foreign currencies?

• Quoting benefits:

  • Potentially lower foreign financing costs

  • Customer preference for local currency

Adjusting Prices with Exchange Rate Fluctuations

• Strategies to manage currency strength:

  • Compete on price or non-price factors

  • Use of domestic manufacturing or sourcing

  • Invoice in foreign or domestic currency

Countertrade in High-Risk Markets

Advantages

• Access to new markets

• Selling surplus or low-quality products

• Strengthening political ties

Disadvantages

• Challenges in product sourcing and pricing evaluation

• Difficulty in profit evaluation and potential for increased competition

Further Reading

• Core Textbook Chapter 11 (with case study on iPhone)

• Next Week’s Lecture: Sustainability

• This Week’s Tutorial: