International Pricing Strategy DanaNicoleta Lascu Chapter 16 Copyright

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International Pricing Strategy Dana-Nicoleta Lascu Chapter 16 Copyright Atomic Dog Publishing, 2002

International Pricing Strategy Dana-Nicoleta Lascu Chapter 16 Copyright Atomic Dog Publishing, 2002

Chapter Objectives • Identify pricing-related internal challenges facing international firms • Identify pricing-related challenges

Chapter Objectives • Identify pricing-related internal challenges facing international firms • Identify pricing-related challenges imposed by competition on international firms • Identify pricing-related challenges imposed by the political and legal environment on international firms • Identify pricing-related challenges imposed by the economic and financial environment on international firms • Address international pricing decisions of international firms Copyright Atomic Dog Publishing, 2002

Pricing Impact Pricing is especially important in international marketing strategy decisions, due to its

Pricing Impact Pricing is especially important in international marketing strategy decisions, due to its effect on product positioning, market segmentation, demand management, and market share dynamics. Copyright Atomic Dog Publishing, 2002

Pricing Considerations • Nature of the product • Production plant locations • Distribution system

Pricing Considerations • Nature of the product • Production plant locations • Distribution system used • Economic climate • Currency fluctuations and exchange rates Copyright Atomic Dog Publishing, 2002

Production Facilities The location of production facilities determines the extent to which a company

Production Facilities The location of production facilities determines the extent to which a company can control costs and price their products competitively. • • • Multinationals shift production to take advantage of lower costs and exchange rates Small- to medium-size firms are limited to exporting Can price product “out of the market” Copyright Atomic Dog Publishing, 2002

Ability to Track Costs • Products can be manufactured and assembled in different countries.

Ability to Track Costs • Products can be manufactured and assembled in different countries. § Difficult to track costs Copyright Atomic Dog Publishing, 2002

Environmental Considerations International companies must react effectively to changes in the competitive environment, in

Environmental Considerations International companies must react effectively to changes in the competitive environment, in the political and legal environment, and in the economic and financial environment. Copyright Atomic Dog Publishing, 2002

Environmental Influences • Competition § Keep product prices low § Offer legal “copycat” products

Environmental Influences • Competition § Keep product prices low § Offer legal “copycat” products § Retail challenges difficult to identify § Competition from unauthorized channels § Cheaper prices in countries with weaker currencies Copyright Atomic Dog Publishing, 2002

Dumping • Foreign company can impose high prices at home as result of trade

Dumping • Foreign company can impose high prices at home as result of trade barriers imposed against imports • Company uses profits to sell at much lower prices in foreign markets § § Builds market share Suppresses profitability of competitors with open home markets • Anti-dumping policies vary • Challenges and charges abound Copyright Atomic Dog Publishing, 2002

Environmental Influences • Political and Legal § Dumping § Setting limits on gross margins

Environmental Influences • Political and Legal § Dumping § Setting limits on gross margins § Setting price limits § Local government subsidies to manufacturers § Tariffs § Restricting repatriation of profits by multinationals § Taxing and/or encouraging reinvestment of profits Copyright Atomic Dog Publishing, 2002

Transfer Pricing • Products priced at market level § § Help multinational under-report profits

Transfer Pricing • Products priced at market level § § Help multinational under-report profits Decreases tax burdens in countries where company has foreign direct investment Copyright Atomic Dog Publishing, 2002

Price of Protectionism • Adds to final price paid by consumer § 7% ($600

Price of Protectionism • Adds to final price paid by consumer § 7% ($600 b) of European Union GDP Copyright Atomic Dog Publishing, 2002

Environmental Influences • Economic, Financial, Monetary § Inflation § Fluctuating exchange rates § Hard

Environmental Influences • Economic, Financial, Monetary § Inflation § Fluctuating exchange rates § Hard versus soft currencies § Counter trade Copyright Atomic Dog Publishing, 2002

U. S. Position on Countertrade In line with GATT and the WTO, U. S.

U. S. Position on Countertrade In line with GATT and the WTO, U. S. policy opposes government-mandated counter trade. • Interferes in the case of firms that operate with U. S. government financing, or with firms that have contracts with the U. S. government • Does not deter firms from engaging in counter trade with private parties. Copyright Atomic Dog Publishing, 2002

Countertrade Brokers • Perfect matches for product exchanges rare • Exchanges are complex •

Countertrade Brokers • Perfect matches for product exchanges rare • Exchanges are complex • Numerous companies broker barter deals Copyright Atomic Dog Publishing, 2002

Countertrade Advantages Disadvantages • Facilitates sale of products in emerging markets • Foreign lenders

Countertrade Advantages Disadvantages • Facilitates sale of products in emerging markets • Foreign lenders could have prior claim on goods • Can help an exporting company bypass trade restrictions • Restrict profit margins • Encourage economic inefficiency • Prices are distorted • Could receive inferior quality goods • Exchange partners can become competitors • Involves extensive negotiations Copyright Atomic Dog Publishing, 2002

Types of Countertrade • Monetary Exchange • Barter • Clearing Agreement • Switch Trading

Types of Countertrade • Monetary Exchange • Barter • Clearing Agreement • Switch Trading • Compensation • Counter purchase • Offset Purchase • Buyback Agreements Copyright Atomic Dog Publishing, 2002

Setting Prices • Tends to be experience driven • Highly decentralized • Important for

Setting Prices • Tends to be experience driven • Highly decentralized • Important for marketing managers to be familiar with the price elasticity of their products Copyright Atomic Dog Publishing, 2002

Pricing Practices Higher Home Market Prices Justified by: • • Lower labor or raw

Pricing Practices Higher Home Market Prices Justified by: • • Lower labor or raw material cost in the international market Strong local competition in the international market Lower buying power of host-country consumers Goal: increase market share via penetration pricing Copyright Atomic Dog Publishing, 2002

Pricing Practices, continued Lower Home Market Prices Justified by: • • No cost advantages

Pricing Practices, continued Lower Home Market Prices Justified by: • • No cost advantages to producing overseas Few or no challenges from international competition Limited market potential International buyers can afford higher prices Copyright Atomic Dog Publishing, 2002

Aggressive Export Pricing Dynamic Incremental Pricing • Assumes certain fixed costs • Does not

Aggressive Export Pricing Dynamic Incremental Pricing • Assumes certain fixed costs • Does not factor in international promotion costs for domestic distribution or full overhead • Product cost reflects only variable costs Copyright Atomic Dog Publishing, 2002

Standardized vs. Local Pricing • Prices set to meet purchase power of consumers and

Standardized vs. Local Pricing • Prices set to meet purchase power of consumers and to account for differences in distribution systems, market position, and taxes Standardized Pricing • Uniform price worldwide Copyright Atomic Dog Publishing, 2002

Penetration Pricing and Skimming Penetration Pricing • Price lower than competitors in order to

Penetration Pricing and Skimming Penetration Pricing • Price lower than competitors in order to quickly penetrate the market at competitors' expense Skimming • Pricing above competitors’ prices when competition is minimal • Focus on quality, uniqueness and status Copyright Atomic Dog Publishing, 2002

Chapter Summary • Identified pricing-related internal challenges facing international firms • Identified pricing-related challenges

Chapter Summary • Identified pricing-related internal challenges facing international firms • Identified pricing-related challenges imposed by: § § § Competition Political and legal environment Economic and financial environment • Addressed international pricing decisions Copyright Atomic Dog Publishing, 2002