4/25/2020
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Factors Influencing Pricing Strategy in International Marketing
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Factors Influencing Pricing Strategy in
International Marketing
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Some of the most important factors influencing pricing strategy in
international marketing are as follows:
Pricing decisions are complex in international marketing. A firm may have to follow
different pricing strategies in different markets. Whatever might be the strategy
followed, pricing has to reflect the proper value in the eyes of the consumer. Pricing is
an important strategic and tactical competitive weapon that can be used by a firm in
international marketing.
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Factors Influencing Pricing Strategy in International Marketing
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It represents that element of the marketing mix, which is controllable by the firm to a
large extent. A firm should integrate pricing strategies with the other elements of the
international marketing mix.
Choice of a pricing strategy is dependent on:
1) Corporate goals and objectives
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2) Customer characteristics
3) Intensity of inter-firm rivalry
4) Phase of the product life cycle
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Having considered the factors influencing
the choice of strategy, let us now
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turn specifically to different strategies:
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1) Skimming Strategies:
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Factors Influencing Pricing Strategy in International Marketing
One of the most commonly discussed strategies is the skimming strategy. This strategy
refers to the firm’s desire to skim the market, by selling at a premium price. Skimming
refers to the objective of achieving highest possible contribution in a short time. To use
this approach, the product has to be unique and the target market should be willing to
pay the high price. Success of this strategy depends on the ability and speed of
competitive reaction. A firm with a small market share can face aggressive local
competition when using skimming. Maintenance of high quality requires lot of
resources. If the product is sold cheaply at home, then the problems of gray market can
surface.
This strategy delivers results in the following situations:
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i) When the target market associates quality of the product with its price, and high
price is perceived to mean high quality of the product.
ii) When the customer is aware and is willing to buy the product at a higher price just to
be an opinion leader.
iii) When the product is perceived as enhancing the customer’s status in society.
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iv) When competition is non-existent or the threat from potential competition exists in
the industry because of low entry and exist barriers.
v) When the product represents significant technological breakthroughs and is
perceived as a ‘high technology’ product.
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In adopting the skimming strategy the firm’s objective
is to
achieve an early break-even
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point and to maximize profits in a shorter time span or seek profits from a niche.
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Factors Influencing Pricing Strategy in International Marketing
2) Penetration Pricing Strategies:
As opposed to the skimming strategy, the objective of penetration price strategy is to
gain a foothold in a highly competitive market. The objective of this strategy is market
share or market penetration. Here, the firm prices its product lower than the others do
in competition. Penetration pricing uses deliberate low prices to stimulate market
growth and capture market share. It can be useful when there is a mass market and
price sensitive customers. Japanese companies increasingly resort to penetrative
pricing due to intense local competition.
This strategy delivers results in the following situations:
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i) When the size of the market is large and it is a growing market.
ii) When customer loyalty is not high customers have been buying the existing brands
more because of habit rather than any specific preferences for it.
iii) When the market is characterized by intensive competition
iv) When the firm uses it as an entry strategy
v) Where price-quality association is weak.
3) Differential Pricing Strategies:
This strategy involves a firm differentiating its price across different market segments.
The assumption in this strategy is that different market segments do not communicate
or have different search costs and value perceptions of the product. In other words
heterogeneity in the market motivates a firm to adopt this strategy.
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4) Geographic Pricing Strategies:
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Factors Influencing Pricing Strategy in International Marketing
This strategy seeks to exploit economies of scale by pricing the product below the
competitor’s in one market and adopting a penetration strategy in the other. The
former is termed as second market discounting. This second market discounting is a
part of the differential pricing strategy where the firm either dumps or sells below its
cost in the market to utilize its existing surplus capacity. So, in geographic pricing
strategy, a firm may charge a premium in one market, penetration price in another
market and a discounted price in the third.
5) Product Line Pricing Strategies:
These are a set of price strategies, which a multi-product firm can usefully adopt. An
important fact to be noted is that these products have to be related, in other words
belonging to the same product family. Faced with multi-products and fluctuating
demand, the firm may adopt a combination of the following strategies to effectively
manage its product line or maximize its profits across the product line.
i) Price Bundling:
This strategy is used by a firm to even out the demand for its product. This is useful
strategy for perishable; time-bound products like food, hotel room or a seat on a flight
and for products cannot be substituted, like the package of stereo music system. Offseason discounts and, season tickets for music festivals are examples of price bundling
strategy. This is a passive strategy aimed at correctly bundling the prices of related
items so that the firm is able to maximize its profits.
ii) Premium Pricing:
This strategy is used by a firm that has heterogeneity of demand for substitute products
with joint economies of scale. Consider the example of a colour television set. There are
different models available with different features, like the one with a remote control
and another without it. Both are substitutable and satisfy the customer needs. But the
firm may opt to premium price the first model and position it as the top of the product
line for high income or upper income group of customers or for whom communicating
that “they have arrived” is important,
iii) Image Pricing:
This strategy is used when consumers infer quality from the prices of substitute models
or competing products. The firm varies its prices over different brands of the same
product line. This strategy is commonly used inPlay
textiles,
cosmetics, toilet soaps and
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perfumes.
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iv) Complementary Pricing:
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Factors Influencing Pricing Strategy in International Marketing
This strategy is used by a firm that has customers with high transaction costs for one or
more of its products. Transaction costs are all those costs that a customer has to incur
to buy the product, like the registration fees that a flat buyer has to pay in order to be a
legal owner or the processing fees that the bank may charge to give a credit card to the
customer.
v) Captive Pricing Strategy:
Here a special price deal is offered to loyal customers or those who are regularly buying
one of the products of the firm. A typical example is the Gillette shaving system, which
offers two twin blades free with its razor to induce the buyer to purchase its blades.
Kodak adopted this strategy, when it offered a film roll free to all buyers who bought its
camera. As may be observed this is a strategy aimed at building customer loyalty.
vi) Loss Leader Strategy:
This is another example of complementary pricing strategy. This strategy involves
dropping the price on a well-known brand to generate demand or traffic at the retail
outlet.
vii) Two-Part Pricing:
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This strategy is used by products that can be divided into two distinct parts. For
example, membership of a video library has two parts – one is the membership fee,
which is annual and the other is rent for each time frame for which a videocassette is
rented. As may be observed the price has two components, the fixed fees and the
variables usage fees.
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Related Articles:
1. Pricing Strategies: Price Skimming and Penetration Pricing
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TABLE OF CONTENTS
1) Skimming Strategies:
2) Penetration Pricing Strategies:
3) Differential Pricing Strategies:
4) Geographic Pricing Strategies:
5) Product Line Pricing Strategies:
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