INTERNATIONAL MARKETING
MANAGEMENT
SESSION 10:
INTERNATIONAL PRICING
1
ISSUES IN ESTABLISHING INTERNATIONAL PRICING POLICY

Use of Price as a Competitive Tool

Standardized vs. Differentiated Prices
2
PRICING: BARRIERS TO STANDARDIZATION

Shipping and Transportation Costs, Tariffs

Income Levels, Price Sensitivity

Prices of Competing and Substitute Products

Trade Margins, Taxes, Price Regulation
3
FACTORS COMPLICATING INTERNATIONAL PRICING DECISIONS

Foreign Exchange Risk: Changes in
Value of One Currency vs. Another
HEDGING

Rates of Inflation

Lack of Foreign Exchange
BARTERING

Gray Markets
4
PORTRAIT OF A DEAL
GOVERNOR of Yamal-Nenets
Region demands payment of
energy royalties from gas
monopoly GAZPROM.
1
2
GOVERNOR asks barter
specialist, ANDREI TOLMACHEV,
to trade the gas for an airplane.
3
GOVERNOR gets his
plane six months after
the transaction begins.
TOLMACHEV earns a
commission equal to 10%
of the $17 million plane.
6
GAZPROM, claiming to lack
cash, offers to pay in gas.
TOLMACHEV then signs
contract with aircraft
manufacturer AVIACAR.
4
AVIACAR, lacking cash, can’t buy
components to make the plane. TOLMACHEV
trades more than 100 cars, tractors, and buses
to acquire a $2 million engine and swaps
$250,000 of electricity and tires to secure
electrical equipment from different companies.
5
5
GRAY MARKETS
DEFINITION
Branded or trade-marked product sold through unauthorized distribution
channels triggered by price differentials between countries
POSITIVE CONSEQUENCES
 Taps Price-Sensitive Customers
NEGATIVE CONSEQUENCES




Damage to Trademark/Quality Image
Legal Liabilities -- Warranties, etc.
Strained Channel/Distributor Relations
Disruption of Global Marketing Strategy
STRATEGIES TO COUNTERACT GRAY MARKETS
 Price Cutting
 Differentiate Product Model, Warranties, etc.
 Cutoff/Control Supply
 Promote Gray Market Product Limitations
6
COST-BASED PRICING
COSTS
 Production
 Freight and Packaging
 Handling and Processing Costs
DUTIES
 Import Duties
 Custom Duties
MARGINS
 Importer Margins
 Distribution Margins
PRICE ESCALATION
7
NON-COST FACTORS TO CONSIDER IN INTERNATIONAL PRICING
DEMAND
 Price Sensitivity
 Modes of Payment
 Quality and Prestige Associations
COMPETITION
 Prices of Competing and Substitute Products
 Competitor Reaction
DISTRIBUTION
 Availability of Certain Outlets/Discounters, etc.
 Regulation of Retail/Wholesale Margins and Prices
8
ONE CAR, SO MANY PRICES
Prices for a
Volkswagen Golf*
BRITAIN
$13,040
FINLAND
8,290
FRANCE
10,510
GERMANY
11,040
ITALY
10,690
* Excludes taxes
DATA: EUROPEAN UNION
9
The Hamburger Standard
Big Mac Prices
Local Currency
Dollars
United States***
$2.54
Argentina
Peso2.50
Australia
A$3.00
Brazil
Real3.60
Britain
£1.99
Canada
C$3.33
Chile
Peso1260
China
Yuan9.90
Czech Rep
Koruna56.00
Denmark
DKr24.75
Euro area
2.57
France
FFr18.5
Germany
DM5.10
Italy
Lire4300
Spain
Pta395
Hong Kong
HK$10.70
Hungary
Fo399
R
Indonesia
Rupiah14700
Yen294
Japan
Malaysia
M$4.52
Mexico
Peso21.9
New Zealand
NZ$3.60
Philippines
Peso 59.00
Poland
Zloty5.90
Russia
Rouble35.00
Singapore
S$3.30
South Africa
Rand9.70
South Korea
Won3000
Sweden
SKr24.0
Switzerland
SFr6.30
Taiwan
NT$70.0
Thailand
Baht55.0
2.54
2.50
1.52
1.64
2.85
2.14
2.10
1.20
1.43
2.93
2.27
2.49
2.30
1.96
2.09
1.37
1.32
1.35
2.38
1.19
2.36
1.46
1.17
1.46
1.21
1.82
1.19
2.27
2.33
3.65
2.13
1.21
Implied PPP*
of the dollar
Actual $ exchange
rate 17/04/01
-
0.98
1.18
1.42
1.28**
1.31
496
3.90
22.00
9.74
0.99 €
7.28
2.01
1693
156
4.21
157
5787
116
1.78
8.62
1.42
23.2
2.32
13.8
1.30
3.82
1181
9.45
2.48
27.6
21.7
*Purchasing-power parity: local price divided by price in United States
***Average of New York, Chicago, San Francisco and Atlanta
** £ Dollars per pound € Dollars per Euro
Source: McDonald’s; The Economist
-
1.00
1.98
2.19
1.43**
1.56
601
8.28
39.0
8.46
0.88 €
7.44
2.22
2195
189
7.80
303
10855
124
3.80
9.29
2.47
50.3
4.03
28.9
1.81
8.13
1325
10.28
1.73
32.9
45.5
Under (-)/
over (+)
valuation
against the
dollar %
-
-2
-40
-35
12
-16
-17
-53
-44
15
-11
-2
-9
-23
-18
-46
-48
-47
-6
-53
-7
-43
-54
-42
-52
-28
-53
-11
-8
44
-16
-52
10
SUMMARY

Aggressive Pricing as Difficult to Sustain

Difficult to Standardize Pricing Internationally

Importance of Considering Demand,
Competition and Infrastructure Factors
11