International pricing

International pricing directly impact the success of product in international market.Right pricing strategies and methods of pricing helps in making the brand hit in global market.

1. INTERNATIONAL PRICING by VIJYATA Assistant Professor ( Deptt . of MBA) Ranchi Women’s College ,Ranchi University

2. introduction Of the 4Ps of the marketing mix, pricing receives the least attention but success in international marketing depends on right pricing of the product.

3. Objective of pricing in international marketing The main objective of pricing in overseas marketing should be to meet the customer demand in competitive situation in such a way that sales and profit are maximised. Additionally there can be these following objectives too specific to market and product : PENETRATION - quoting a low price to divert demand or to generate new demand SKIMMING – to charge premium price after having a strong foothold in market HOLDING MARKET SHARE – to react with price adjustments with competitors and exchange rate fluctuations( single country market ) ENHANCING SHARE – out-pricing competitor either by enhancing cost efficiency or by quoting price based on direct costs and not on total costs

4. Factors affecting pricing decisions Cost of the Product Competition in the foreign market Demand for the product in the foreign market Exchange rate fluctuations International transportation cost Governing trade policies and price regulations Varying inflation and interest rates in different countries Micro and Macro marketing environments of the overseas as well as domestic market

5. Pricing process

6. Elements of Cost in export Direct Cost i.e Material , labor, other direct charges Indirect Cost + Factory overhead = Factory Cost General and Administrative expenses = Total Cost Distribution and selling Expenses Marketing Support cost = Total cost of Sale Export packaging , marketing and labelling Port/Dockyard/Airport handling charges Documentation fees Duties and taxes related to exporting Importer’s, Wholesaler’s, Retailer’s and agent’s margin and mark-up

7. International pricing methods Cost Plus Method Marginal Cost Pricing Differential Pricing Probe Pricing Penetration Pricing Skimming Pricing Competitive Pricing Transfer Pricing

8. COST PLUS METHOD This implies charging the total costs plus profit. Here cost includes all costs incurred in international trade like special packaging, labelling, transportation , insurance , handling duties, taxes and levies at different stages from the place of origin in the exporting country to the foreign country , depending on terms of sale. MARGINAL COST PRICING In some circumstances , exporter may charge price to cover only prime cost or just material cost-plus packing and other direct export marketing cost.This is known as Marginal cost pricing method . It is used to penetrate into foreign markets.

9. DIFFERNTIAL PRICING Different prices are charged in different markets and different segments based on competition and business environment varying from country to country. PROBE PRICING A new entrant into a foreign market having little/no knowledge of the market tries to probe the prospects of the market by quoting price approximation relating to sales volume and value. Cost plus profit and competitor’s prices are used for setting probe pricing parameters.

10. PENETRATION PRICING This price may yield marginal surplus over the total cost, or just cover the full cost or in some cases even the total cost may not be realised, but there are considerable chances of realising them in future. SKIMMING PRICING If the exporter has very strong foothold in foreign market with very unique selling proposition and competitive advantage with favourable positive image, higher prices may be charged to maximise gains.

11. COMPETITIVE PRICING Adjustment and adaptations of pricing depending on the prices quoted by competitors is know as competitive pricing. TRANSFER PRICING In international marketing, different units under the same corporate body but located in different foreign countries, exchange goods and services among themselves, the pricing of such exchanges is known as transfer pricing. Transfer pricing takes taxes and duties leviable in the countries concerned , their marketing conditions, paying potential of prospect clients , profit transfer rules and varying government rules into account.

12. Transfer pricing methods Alternative approaches to transfer prices are : Transfer at cost : This approach assumes that lower costs lead to better performance by the subsidiary/affiliate and also helps in keeping duties low at the receiving end. The transferring company do not have expectation of profit , rather the receiving subsidiary is expected to generate profit by subsequent sale. Transfer at cost plus overhead and margin This approach assumes that profit must be shown at every stage of movement through the channel. But this may result in pricing unrelated to competition or demand condition in foreign market.

13. Transfer at price derived from end market prices Under this method the price is derived from the competitive foreign market prices. Here , there are chances of not meeting the production cost by the seller or the margins may be too low but, it helps in establishing name into a new market. Transfer at “ Arm’s length price” Using this method , the transfer price is the price that unaffiliated parties in a similar transaction agreed on.

14. dumping One of the challenging issues in international pricing is dumping. Dumping refers to the practice of charging a very low price for imported goods to the detriment of the same product manufactured domestically. Dumping can be sporadic when the manufacturer with unsold inventories wants to dispose it in other countries, at lower price. By means of Predatory dumping company gains access to overseas market by selling initially at a loss to drive out competition. Reverse dumping is another form of dumping where overseas demand is less elastic and will tolerate a higher price. In this case , dumping occurs in the home market. Dumping can be legal or illegal based on the laws of the market in which it takes place.

15. Counter-trade Counter- trade is one of the practice in international pricing. Counter trade refers to a government mandate to pay for goods and services with something other than cash. Counter trade can be in the form of barter where one product is exchanged for another (parallel barter), where two contracts or a set of parallel cash sales agreement is effected. The main reasons for spread of counter trade are : It provides a trade financing alternative to the countries having international debt and liquidity problems. It facilitates access to new market It fits well with the growth of bilateral trade agreements between governments.

16. Global pricing alternatives Finns operating in international markets follow three pricing approaches, predominantly: Ethnocentric approach Polycentric approach Geocentric approach

17. Ethnocentric approach A company following an ethnocentric approach follows the same pricing policy throughout the world. The importer of the product will bear the freight and import duties. This approach is convenient to adopt because there is no need to make any modifications to price based on competitive or market conditions. The firm need not put in efforts to collect information on these market conditions. But by adopting tins approach, a firm might fail to make optimum profits by not fixing the prices of the products based on regional market conditions

18. Polycentric approach A firm following this approach allows its regional managers to fix the product prices based on the circumstances in which they operate. Tins approach might prove to be not so good, when the disparity in product prices from one region to another is higher than transportation costs and duties. When this condition prevails, customers will buy the products in markets where they are available at low price and ship them to where the prices are relatively high. This will result in loss of revenue for the firm following this approach.

19. Geocentric approach A firm adopting this approach takes a medium position between fixing a single price worldwide and fixing different prices based on the requirements of subsidiaries. One of the fundamental assumptions underlying tins approach is that markets are unique, and specific factors related to them have to be taken into account while making a pricing decision. Also the approach takes into consideration tire price coordination necessary at headquarters to deal with international accounts and product arbitrage. This approach is the most practical of all because it takes into consideration both global competition and local rivalry in establishing prices.

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