International pricing strategies
Learning Objectives
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Identify and evaluate the factors
affecting international pricing
Appreciate the significance of costs
Develop pricing strategies for different
products/markets
Appreciate the problems associated
with implementing international pricing
strategies
Pricing is……….
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The only element of the marketing mix
which creates revenue (and profit?)
The most neglected element of the
marketing mix in terms of academic
research
Increasingly important in the wake of
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market de-regulation
price harmonisation policies
What influences international pricing?
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Corporate objectives/strategy
Costs
What influences international pricing?
1. Company objectives/strategy pricing*
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Take margins now (premium pricing strategy)
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USE:
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Take margins later (discount pricing strategy)
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USE:
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following high investment in R&D, A&P, brand development
etc.
Reflect premium brand/product
entry strategy e.g. Nissan, Toyota, Honda in 1970s
e.g. a strategy to buy market share
Never take margins (loss leader strategy/crosssubsidisation)
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USE:
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to promote engagement with the brand
*Lancioni and Gattorna, 1992
What influences international pricing?
2. Company costs – usually the price floor
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Fixed/indirect – unrelated to the level of output
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Variable/direct - related to the quantity produced
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High for services
Low for services
Specific international costs (price escalation):
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Carriage, insurance and freight (c.i.f.):transport, agents’
fees, port charges, documentation costs etc.
Plus:
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Import duty
Distributor mark-ups
Host country tax
Impact of price escalation - 3 cases
Domestic channel
Firm to wholesaler to retailer
Export channel 1
Firm to foreign
wholesaler to retailer
Export channel 2
Firm to foreign
importer to
wholesaler to
retailer
£
£
£
40.00
40.00
40.00
Insurance and shipping costs
(10%)
4.00
4.00
Landed cost + 20% tariff
8.80
8.80
Net price
Importer’s cost
52.8
Importer’s margin (25%)
13.20
Wholesaler’s cost
40.00
52.8
66.00
Wholesaler’s margin(33%)
13.20
17.6
22.00
Retailer’s cost
53.20
70.40
88.00
Retailer’s margin (50%)
26.66
35.20
44.00
Retail price (excluding tax)
79.80
105,60
132.00
32%
£65.60
65%
£92.00
Price escalation on-cost
Potential savings thro’
local production/sales
office
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What influences international pricing?
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What costs can we avoid?
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What costs must we absorb?
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e.g. do we set up sales offices or build a
factory?
Can we franchise or license our operations
Exchange rate movements
Taking lower profits abroad?
What influences international pricing?
3. Consumers
 No two countries are exactly the same
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Purchasing power (disposable income)
Stage in the PLC
First time buyers? (e.g. McDonald’s in Russia)
Brand loyalty
Attitude to quality
What influences international pricing?
4. Competition
 Competitive rivalry:
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How many?
Size?
Host country companies?
Multinational companies?
Threat of new entrants/barriers to entry
Threat of substitutes
What influences international pricing?
5. Country/regional factors:
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Trade bloc factors
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e.g.price harmonisation in Europe
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Little evidence in reality yet!
Pressure groups
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E.g. Organisation of Petroleum Producing
Countries (OPEC)
What influences international pricing?
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Variations in % Value Added Tax (VAT)
Variations in tax structure
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e.g. luxury car tax
e.g. lower tax on parts for local assembly
Export credits for local purchasing
What influences international pricing?
6. Currency/monetary factors
 Differential inflation rates between
producing country and host countries
 Changing exchange rates
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E.g. appreciation of the Yen in 1990s
Both can seriously undermine
positioning strategies
Exchange rate fluctuations raise two
issues
How much of the price change can be
passed through to customers?
To what extent do we price to market ?
1.
2.
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E.g. Export price to US=£100
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Xrate is $2:£, US price =$200
Xrate rises to $2.5:£, US price =$250
Do we:
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pass tho’ and loose market share or
price to market and take a cut in profit ($50=£20)
Evidence that German companies pass thro’
and Japanese companies price to market
What influences international pricing?
7. Channels
 Variations in distributor power
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e.g. retailers in UK, France and Germany
Variations in margins between countries
Alternative:
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distribute direct/cut out the middle man
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e.g. Mercedes in Europe
What influences international pricing?
8. Large differences in price between
countries lead to Parallel importing
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Undertaken by unofficial distributors
Taking advantage of differential prices
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e.g. pharmaceuticals in Europe:
- Glaxo’s Zantac sold to Greece, bought by UK
distributors, re-imported and sold to the NHS!
Undercuts official prices, reduces profits and
undermines brand propositions
Transfer pricing
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Intra-company trading to maximise global
profit
Relates to movement of raw materials,
components as well as finished
goods/services
To reduce the impact of duty and tax
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Set low prices in high duty/tax countries
Set high prices in low duty/tax countries
Ethical concerns
Dumping
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Selling at lower prices in foreign
markets
At less than ‘cost’
Illegal in many countries e.g. US
Examples:
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Boeing v Airbus Industrie
Recent steel duty increases in U.S.
Difficult to prove
Counter-trade
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Non-currency related payment
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e.g., goods or partial J.V.s
Used by countries with limited reserves
of convertible currency
c5% of UK exports, c8% of world trade
(GATT), could be much higher
Distinct from barter (goods only
payment) - less risky