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Factors influencing the degree of international pricing strategy standardization of
multinational corporations
Marios Theodosiou, Constantine S Katsikeas. Journal of International Marketing.
Chicago: 2001. Vol. 9, Iss. 3; pg. 1, 18 pgs
Abstract (Summary)
In response to certain important gaps identified in the global marketing literature, a study
investigates the pricing strategies followed by manufacturing subsidiaries of
multinational corporations. Specifically, it attempts to identify the factors that play an
important role in determining the degree of international pricing strategy standardization.
The findings suggest that the extent to which multinationals standardize their
international pricing strategies depends on the level of similarity between home and host
countries in terms of customer characteristics, legal environment, economic conditions,
and stage of the product life cycle. The study highlights implications of the findings for
business practitioners and discuss future research directions along with the limitations.
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Copyright American Marketing Association 2001
[Headnote]
ABSTRACT
[Headnote]
In response to certain important gaps identified in the global marketing literature, the
focus of this inquiry is an investigation of the pricing strategies followed by
manufacturing subsidiaries of multinational corporations. Specifically, the authors
attempt to identify the factors that play an important role in determining the degree of
international pricing strategy standardization. The findings suggest that the extent to
which multinationals standardize their international pricing strategies depends on the
level of similarity between home and host countries in terms of customer characteristics,
legal environment, economic conditions, and stage of the product life cycle. The authors
highlight implications of the findings for business practitioners and discuss future
research directions along with the limitations of the study.
Increasing liberalization, interdependence, and competition in world economies have
accelerated the need for multinational corporations (MNCs) to develop effective global
strategies in their endeavor to achieve sustainable competitive advantage in international
markets (Samiee and Roth 1992). Marketing has played a significant role in the
advancement of the field of international business; marketing strategy constitutes a
critical component of a firm's global strategy (Zou and Cavusgil 1996). The development
of optimal programs for global markets is of vital interest to business managers who view
international operations as a means of boosting corporate growth, improving competitive
position, strengthening financial performance, and ensuring company survival and longterm viability in a highly globalized marketplace.
In this context, the extent to which elements of the marketing program should be
standardized across markets or adapted in order to accommodate different foreign market
conditions, requirements, and preferences has received focal research attention at both the
conceptual and the empirical level. The approach an MNC adopts has important
implications because (1) it influences the MNC's ability to match its offerings effectively
with the overseas market environments in which it operates, (2) it affects its long-term
direction with respect to international operations, and (3) it determines the areas that
should be prioritized in global resource allocation decisions (Jain 1989).
Notwithstanding the long-standing interest in and many articles published on the topic, a
review of the pertinent literature illustrates that scant attention has been devoted to
investigating drivers of international pricing strategy standardization (Samli and Jacobs
1994). The vast majority of studies have focused on promotion (e.g., Harris 1994; Harvey
1993), product (e.g., Hill and Still 1984; Walters and Toyne 1989), and to a lesser extent
distribution (e.g., Rosenbloom, Larsen, and Mehta 1997) aspects of the international
marketing program. However, understanding the elements that influence the extent of
standardization of international pricing strategy is vital, because standardization can
affect firms' revenue and profitability levels and determine a product's foreign market
positioning (Czinkota and Ronkainen 1998). Furthermore, previous standardization
studies have commonly been conducted at the headquarters level, and the perceptions and
attitudes of subsidiary managers have largely been ignored. Nevertheless, subsidiaries
play an important role in international marketing strategy formulation and
implementation as a result of their closeness to the market and better understanding of
local conditions.
In view of these limiting empirical considerations, the primary interests of this
investigation focus on the pricing strategies MNCs follow. Because the key consideration
in international business operations is whether the marketing strategy should be
standardized or adapted, we consider international pricing strategy along the
standardization-adaptation continuum (Cavusgil and Zou 1994). Specifically, this
empirical inquiry aims to investigate the factors that play an important role in influencing
the degree of international pricing strategy standardization from the standpoint of
subsidiary managers. The study begins with an overview of the standardization versus
adaptation debate. This is followed by an examination of the factors that are potentially
associated with pricing standardization and the development of specific research
hypotheses. Next, we specify the research method employed, and then present and
discuss the results of the study. Finally, we highlight managerial implications of the
findings and limitations of the study, along with directions for further research.
The degree to which international marketing programs must be standardized or
customized has been a contentious issue for more than three decades now. A review of
the pertinent literature identifies three schools of thought: the two extreme opposites of
complete standardization versus complete adaptation and the "middle-of-the-road," or
contingency perspective. These perspectives are examined next.
The arguments in favor of marketing program standardization emphasize two main
aspects. The first involves the drivers of standardization, defined as the developments in
the international business environment that make standardization a feasible, or even
inescapable strategy. The second aspect refers to the potential advantages that may result
for a company that pursues a strategy of international marketing program standardization,
advantages that make standardization a desirable alternative.
Technological developments in the areas of communication and transportation, as well as
increasing international travel by tourists and businesspeople, are considered driving
forces behind the creation of a global village and thus a global marketplace (e.g., Elinder
1965). In a controversial article, Levitt (1983, p. 95) claims that in this new commercial
reality, people around the world have the same needs and desires and that "almost
everyone, everywhere, wants the things they have heard about, seen or experienced
through the new technologies." Similarly, Ohmae (1985) refers to the emergence of the
Tridians: the residents of Japan, the United States, and the European Union. These people
have similar academic backgrounds, income levels, lifestyles, uses of leisure time, and
aspirations; as a result, 600 million consumers in all parts of the Triad have strikingly
similar needs and preferences. Other drivers of standardization discussed in the literature
include the need of international firms to serve their multinational customers (Buzzell
1968; Douglas and Wind 1987), regional economic integration (e.g., North America and
the European Union) (Walters and Toyne 1989), and the growth of international market
segments with similar needs and preferences (Yavas, Verhage, and Green 1992).
Proponents of standardization also emphasize several important benefits associated with
the pursuit of this strategy. The most significant advantage of standardization is its
contribution to the achievement of economies of scale and cost savings in production,
research and development, and marketing (e.g., Keegan 1969). By fully exploiting the
potential for economies of scale in all value-adding activities through marketing program
standardization, international firms will be in a position to gain a significant advantage
over their competitors by selling high quality products at lower prices (Levitt 1983).
Other advantages of standardization proposed in the literature include the potential for
rapid introduction of new products in international markets (Samiee and Roth 1992;
Walters and Toyne 1989), the presentation of a consistent image across markets (Harvey
1993), the ability for worldwide exploitation of new and innovative ideas (Buzzell 1968;
Quelch and Hoff 1986), and better coordination and control of international operations
(Douglas and Craig 1986).
The adaptation school of thought emerged essentially as a reaction to the arguments put
forward in favor of standardization. First of all, many academics expressed their
disagreement with Levitt's (1983) argument about a worldwide homogenization in needs
and preferences, viewing it as overly simplistic, myopic, and contrary to the marketing
concept (e.g., Boddewyn, Soehl, and Picard 1986; Douglas and Wind 1987). According
to these authors, no hard evidence can be produced in support of Levitt's thesis (Douglas
and Craig 1986; Onkvisit and Shaw 1990; Wind 1986). Cross-cultural empirical research
has found significant differences in customer characteristics, preferences, and purchasing
behavior among different countries (e.g., Diamantopoulos, Schlegelmilch, and Du Preez
1995).
Second, critics of standardization have questioned the significance of economies of scale
and the cost savings underlying this approach. On the one hand, technological
developments in flexible manufacturing systems and computer-aided design and
manufacturing facilitate production of customized products without major cost
implications and reduction in the minimum efficient scale of production (Douglas and
Wind 1987; Walters and Toyne 1989). On the other hand, it has been suggested that
certain industries (e.g., packaged consumer goods) are less susceptible to manufacturing
and research and development economies (Quelch and Hoff 1986). Moreover, several
authors have claimed that even when cost savings can be made, their effect may not be
significant if a large proportion of the total cost is determined by factors on which
standardization has no impact (e.g., cost of raw materials and labor) (Douglas and Craig
1986).
Third, according to critics of standardization, there is no evidence to suggest that
customers have become more price conscious or that they are willing to trade off specific
product features for lower prices. It has been argued that low price positioning is a
vulnerable strategy that may not lead to the achievement of sustainable competitive
advantage (Douglas and Wind 1987; Wind 1986).
Fourth, the decision whether to standardize does not depend on managerial discretion
alone. Certain external (e.g., environmental, market, industry) and internal (e.g.,
organizational structure and processes) factors may limit the degree of standardization
that a firm is able to apply (Boddewyn, Soehl, and Picard 1986). Such factors are
responsible for mandatory adaptations, defined as the adaptations a company is obliged to
make, because of either legislation and allied governmental regulations or inescapable
and uncontrollable marketplace realities (Hill and Still 1984).
Furthermore, some authors have indicated several important benefits that are likely to
result from adapting international marketing programs to local market conditions. These
include deeper penetration of foreign markets and thus increased market share and sales
volume for the firm (Cavusgil, Zou, and Naidu 1993); enhanced motivation and morale
of local managers (Douglas and Wind 1987; Quelch and Hoff 1986); and augmentation
of firms' capabilities in analyzing and understanding foreign markets, monitoring market
developments overseas, and quickly responding to shifts in customer preferences (Craig
and Douglas 1996).
Recent standardization literature has followed a more fruitful research avenue by
supporting the contingency perspective of international marketing (e.g., Cavusgil, Zou,
and Naidu 1993). According to this perspective, the difference between standardization
and adaptation is in degree rather than in kind, and the two perspectives are viewed as
occurring along a continuum on a bipolar scale (Onkvisit and Shaw 1987). Therefore, the
challenge facing international marketing managers is to decide which marketing-mix
elements they should standardize or adapt, under what conditions, and to what degree
(Buzzell 1968; Jain 1989).
The critical issue in designing international marketing strategies in the framework of
contingency theory is to identify contextual factors that determine the appropriate degree
of marketing program standardization and determine which individual marketing-mix
elements are influenced by each factor and to what extent. In response to this challenge,
academic researchers have examined the factors that play an important role in the
determination of marketing program standardization, and several classificatory schemes
have been proposed (e.g., Cavusgil, Zou, and Naidu 1993; Jain 1989; Johnson and
Aruthanes 1995).
A review of the extant literature suggests that these factors can be organized into four
broad categories: (1) macroenvironmental factors, including economic, legal, cultural,
physical, and demographic elements (Douglas and Wind 1987; Jain 1989); (2)
microenvironmental factors, such as customer characteristics, attitudes, and behavior
(Jain 1989); the structure and nature of competition (Cavusgil, Zou, and Naidu 1993;
Ozsomer, Bodur, and Cavusgil 1991); and the availability, cost, and competencies of
marketing intermediaries (Harvey 1993; Wind and Douglas 1986); (3) firm-specific
factors, including the degree of centralization in decision making (Quelch and Hoff 1986;
Ozsomer, Bodur, and Cavusgil 1991), the relationship between headquarters and local
subsidiaries (Jain 1989), corporate orientation (Perlmutter 1969), the firm's experience in
international operations (Cavusgil, Zou, and Naidu 1993; Craig and Douglas 1996), and
the subsidiary's ownership structure (Rau and Preble 1987); and (4) product and/or
industry factors, such as the nature of product (Cavusgil, Zou, and Naidu 1993), stage of
product life cycle (PLC) (Baalbaki and Malhotra 1995; Rau and Preble 1987), cultural
specificity of the product (Cavusgil and Zou 1994; Quelch and Hoff 1986), product
uniqueness (Cavusgil, Zou, and Naidu 1993), conditions and patterns of product use (Hill
and Still 1984), product familiarity of foreign customers (Cavusgil, Zou, and Naidu 1993),
and industry technology orientation (Quelch and Hoff 1986; Samiee and Roth 1992).
In investigating the factors influencing the degree of international pricing strategy
standardization, we attempted to include the largest possible number of relevant
contingency variables. However, that the present study represents the first systematic
endeavor to examine this issue using a descriptive, hypothetico-deductive research
approach was a serious obstacle to this end. Although a large number of potentially
important variables have been proposed by various authors at the conceptual level (as
discussed in the previous section), only a limited number of these have been empirically
tested. We therefore deemed it appropriate, from a methodological point of view, to limit
our effort to the examination of contingency variables whose relevance had been
established in previous standardization studies and that could be linked specifically to the
degree of international pricing strategy standardization pursued by MNCs.
Accordingly, a review of the limited empirical evidence, combined with relevant
conceptual work, revealed five factors that are potentially important in influencing the
extent to which MNCs standardize their international pricing strategy: economic
environment, legal environment, distribution infrastructure, customer characteristics and
behavior, and stage of PLC. The relevance of each factor is considered next. The
economic conditions prevailing in a host country can influence pricing decisions in
several ways, because they determine demand potential for a particular product and have
a significant impact on a firm's cost structure. On the demand side, the overall level of
economic and industrial development of a country determines customers' priorities in
terms of the products they consider essential, in addition to the prices they are able and
willing to pay for certain products (Jain 1989). For example, a product considered
essential in a developed country may be viewed as less necessary or even as a luxury item
in a less developed country (Hill and Still 1984). Moreover, demand for a product at
different price levels is a function of the purchasing power of targeted customers, which
is determined by the level of economic development of the country (Jain 1989). On the
cost side, the economic environment of the host country determines the cost of raw
materials, labor, energy, and other resources a firm needs to purchase or hire in order to
carry out its everyday operations (Douglas and Wind 1987; Samli and Jacobs 1994). The
level of such costs has a direct impact on the overall cost structure of local subsidiaries.
Thus, the pricing policy pursued by an international firm in a particular foreign market
should reflect these factors. We therefore advance the following:
H1: The greater the similarity in the economic environment between an MNC's home and
host countries, the higher is the degree of pricing standardization.
Empirical research has shown that differences in government laws and regulations across
markets are among the major obstacles to standardization (Baalbaki and Malhotra 1995;
Cavusgil, Zou, and Naidu 1993). A common law found in many countries that directly
influences pricing is retail price maintenance, which requires firms to sell certain
products at specified prices. The purpose of such laws is either to protect customers from
unfair exploitation or to ensure that certain sensitive products (e.g., pharmaceuticals) are
easily accessible to almost everybody in the population. Governments may also impose
price controls on certain products to protect local producers from international
competition that is deemed unfair. Furthermore, pricing is influenced indirectly by laws
and regulations that necessitate product modifications in compliance with different
technical specifications; health and safety standards; environmental protection acts;
electric, weight, and measurement systems; and the like that may prevail in foreign
markets (Buzzell 1968; Cavusgil, Zou, and Naidu 1993; Douglas and Wind 1987). To
make the required modifications, firms incur extra costs, which forces them either to
charge higher prices or to compress their profit margins. We therefore expect the
following:
H2: The greater the similarity in government laws and regulations between an MNC's
home and host countries, the higher is the degree of pricing standardization.
International firms often must rely on existing distribution channels to distribute their
products in foreign markets. Therefore, the number, type, competencies, costs, and
margins of the intermediaries involved in the process of transferring the product from the
point of production to the end user have a significant effect on a firm's cost structureparticularly if the distribution cost constitutes a significant proportion of the total cost.
This, in turn, may influence price levels, profit margins, and allied international pricing
policy elements (Buzzell 1968). For example, if the distribution channel used in a
particular foreign market involves a greater number of intermediaries or channel
members are less competent and efficient than those in the domestic market, a
significantly higher cost will be added to the product by the time it reaches the end user.
The additional cost incurred is likely to result in higher final selling prices and/or reduced
profit margins for the firm. Under such circumstances, a firm may also decide to modify
other elements of its international pricing policy, including sales and credit terms and
discounts offered. It is therefore possible to hypothesize the following:
H3: The greater the similarity in the distribution infrastructure between an MNC's home
and host countries, the higher is the degree of pricing standardization.
The extent to which an MNC will achieve its objectives in a particular foreign market
will depend largely on its ability to satisfy the needs and preferences of target customers.
Therefore, a careful examination of overseas customer characteristics and purchasing
behavior is essential in selecting an appropriate pricing strategy for a specific foreign
market. Price level is among the most important criteria used by customers in evaluating
competing products (Levitt 1983). However, not all customers are price sensitive; other
criteria (e.g., product quality and performance) may be equally or even more important to
certain customers (Douglas and Wind 1987). Therefore, in developing its pricing policy,
an MNC must be aware of foreign customers' preferences, perceptions, and purchasing
behaviors with respect to various price levels. A standardized pricing policy is more
appropriate if domestic and foreign customers place an equal emphasis on and have
similar perceptions of price. This is more likely to happen when a company is targeting
similar customer segments in domestic and foreign markets (Jain 1989). Therefore, we
suggest the following:
H4: The greater the similarity in customer characteristics and purchasing behavior
between an MNC's home and host countries, the higher is the degree of pricing
standardization. The stage of PLC is a fundamental variable affecting business strategy
(Anderson and Zeithaml 1984). The life cycle of a product consists of four major stages-introduction, growth, maturity, and decline--and marketing strategy programs
differentiate across the various stages. Several empirical studies demonstrate the
important role PLC plays in determining the degree of international marketing strategy
standardization (Baalbaki and Malhotra 1995; Johnson and Aruthanes 1995). Because of
possible differences in economic and market development levels among countries, some
products may be at different stages of their life cycles in different countries (Buzzell
1968). As a result, MNCs may need to modify their pricing programs to take account of
particular local market conditions (Rau and Preble 1987). The significance of such an
approach diminishes in circumstances in which there is no difference in a product's life
cycle stage between the domestic and international markets (Sorenson and Wiechmann
1975). We therefore hypothesize the following:
H5: The greater the degree of similarity in the stage of PLC between an MNC's home and
host countries, the higher is the degree of pricing standardization.
We gathered data for this study from a mail survey of manufacturing subsidiaries of
MNCs operating in the United Kingdom. We developed the sampling frame for this study
using the Financial Analysis Made Easy electronic database of U.K. firms. We identified
706 manufacturing subsidiaries of MNCs, which originated mostly from the United
States, Germany, and Japan. We then contacted each of these firms by telephone to
ensure that the correct address of each company was available, discover whether there
was a product or product line that both the parent firm and its U.K. subsidiary produced
and marketed in their home markets, identify the person in each company who was the
most qualified to provide the required information (i.e., the key informant), and
encourage respondent participation in the survey.
Upon completion of the telephone contacts, we excluded 201 firms for a variety of
reasons, including an absence of common products in the portfolios of the parent firm
and its U.K. manufacturing subsidiary, a company policy of not taking part in external
research studies, a change in the firm's status as a result of a merger or acquisition, or the
unavailability of correct contact details. In 505 of the 706 (72%) firms, we identified
individuals who met the knowledgeability criterion for key informants and were willing
to participate and whose companies had a product or product line that the parent firm also
manufactured and marketed in its own domestic market. All these firms were targeted in
this research.
We developed the questionnaire used in this research in several steps. We initially
reviewed the relevant literature and simultaneously conducted exploratory interviews
with executives in subsidiaries of MNCs to identify items for operationalizing the
constructs under investigation. We designed a preliminary questionnaire, which we then
asked several academic researchers in the field of international marketing to evaluate;
they served as expert judges to appraise the face validity of the items selected. Finally,
we extensively pretested and refined the revised questionnaire in personal interviews with
managers in subsidiaries of MNCs, which thus assured content validity.
Cavusgil and Zou (1994) argue that any study on international marketing strategy
standardization conducted at the overall company level is likely to result in confounded
and thus unreliable findings. This is because international firms often employ different
marketing strategies across countries and product-markets. Therefore, in addressing this
problem in the study of pricing strategy standardization of MNCs, we adopt the product
or product line as the unit of analysis. Specifically, we ask respondents to answer the
questions of the research instrument with reference to a particular product or product line
their company (i.e., the subsidiary) is manufacturing and marketing in the United
Kingdom but that is also manufactured and marketed by the parent firm in its home
market.
The extent of international pricing strategy standardization was measured on the basis of
five items (see Table 1). Respondents were asked to compare the pricing policy followed
by the subsidiary with that pursued by the parent company in its home market. A sevenpoint rating scale, anchored by "very different" (1) and "very similar" (7), was used to
capture individual responses. Regarding the factors that potentially influence pricing
strategy standardization, a set of items was used to measure the degree of similarity in
economic and legal environments, customer characteristics and behavior, and distribution
infrastructure between the U.K. market and that in which the parent firm was based (see
Table 2). Again, responses were captured on a seven-point scale ranging from "very
different" (1) to "very similar" (7). Following Kotabe and Omura (1989) and Johnson and
Aruthanes (1995), a single item was employed to assess the extent to which the focal
product or product line is in the same life cycle stage in both the United Kingdom and the
parent firm's home market. A seven-point scale, anchored by "strongly disagree" (1) and
"strongly agree" (7), was used to measure participant responses.
The guidelines of the total design method (Dillman 1978) were followed to enhance
respondent participation in this mail survey. A copy of the questionnaire, together with a
self-addressed, postage-paid envelope and a cover letter, was personally mailed to the key
informant in each target firm who had been identified during the telephone contacts.
Reminder/thank-you postcards to all managers and two additional follow-up mailings,
followed by two further reminders, produced 129 usable responses. Therefore, a
satisfactory response rate of 26% was achieved.
Table 1.
Table 2.
To assess possible nonresponse bias, we followed Armstrong and Overton's (1977)
formal extrapolation procedure, which is based on the contention that, as contrasted with
early respondents, late respondents are more likely to be similar to nonrespondents. Using
a t-test under the assumptions of both equal and unequal group variances, we found no
significant between-group mean differences between the early and late respondent groups
with regard to any of the variables examined in the study. We therefore conclude that
nonresponse bias is not likely to be a problem in this research.
Scatter diagrams and bivariate correlation analyses pertaining to (1) the international
pricing strategy standardization indicators and (2) the external elements that potentially
influence the degree of pricing standardization indicated that certain items were highly
correlated. Principal components analysis was thus employed in each set of items to
explore the presence of an underlying structure in the data.
Table 1 exhibits the results of principal components analysis for the international pricing
strategy standardization items. When we used an eigenvalue of one or greater as the
factor selection criterion along with the screen test, a single-factor solution emerged that
explained nearly 70% of the total variance. Table 2 shows the principal components
analysis results with respect to the environmental elements that potentially influence the
degree of pricing standardization. A four-factor solution emerged that accounted for
approximately 67% of the total variance. The solution featured strong individual loadings
on each factor, enabling straightforward interpretation. The four factors have been
labeled legal environment, customer characteristics, economic conditions, and
distribution infrastructure. Factor scores were then computed for all five factors that
emerged for use in subsequent analysis.
Multiple regression analysis was used to estimate the relationships of economic
conditions, legal environment, distribution infrastructure, customer characteristics, and
stage of PLC (independent variables) with subsidiary performance (dependent variable),
thus testing H1-H5. As shown in Table 3, both the goodness-of-fit and explanatory power
of the estimated regression model were acceptable. The analysis revealed four significant,
positive relationships in the equation, pertaining to customer characteristics, legal
environment, economic conditions, and PLC stage. These results suggest that the degree
of international pricing strategy standardization of MNCs is influenced by the level of
similarity between home and host countries in terms of customer characteristics, legal
environment, economic conditions, and PLC stage. No relationship was established
between similarity in distribution infrastructure and pricing standardization. Therefore, it
can be concluded that H1, H2, H4, and H5 are validated and H3 is rejected.
Despite the substantial amount of research attention devoted to the subject of marketing
program standardization in international markets, little empirical work has been
undertaken examining the issue of standardization within the context of MNCs' pricing
strategy. To contribute toward filling this void in the global marketing literature, the
focus of the present study is the nature of pricing strategies followed by MNC
manufacturing subsidiaries and the identification of the factors that drive the extent of
international pricing strategy standardization.
The study found that the majority of the participant MNC subsidiaries adopt a relatively
high degree of pricing strategy standardization. This is signified by the mean scores,
standard deviations, and one-sample t-test results for the items used to measure the
pricing standardization construct (see the Appendix). This evidence may be attributed to
the fact that the vast majority of the sample firms originate in the United States, Germany,
Japan, or another developed nation. These countries have considerable resemblance to the
United Kingdom in their levels of economic, industrial, and market development, and this
similarity is conducive to the pursuit of international pricing standardization. However,
previous research shows that a high level of pricing standardization is uncommon among
MNCs that operate in less developed host market contexts compared with their home
market bases (e.g., Ozsomer, Bodur, and Cavusgil 1991). Notably, our findings appear to
suggest that the opposite is true for MNCs domiciled in a developed country and
operating in another developed country.
Regarding the determinants of pricing standardization, the results indicate that the extent
to which MNCs standardize their international pricing strategies depends on certain
environmental and market conditions-the degree of similarity between a firm's home and
host markets in terms of economic conditions, legal environment, customer
characteristics, and stage of PLC. These findings are consistent with earlier research
efforts that have examined determinants of standardization, but within the framework of
an overall marketing strategy (e.g., Douglas and Wind 1987; Jain 1989; Johnson and
Aruthanes 1995; Samiee and Roth 1992; Samli and Jacobs 1994).
However, the level of similarity in the distribution infrastructure between home and host
countries was found, contrary to expectations, not to play an important role in the
determination of the degree of international pricing standardization. One possible
explanation for this result is that distribution costs represent a minor component of the
product's total cost and, in turn, have no significant effect on the international pricing
strategies of the participant MNCs. Nevertheless, this is an issue that warrants further
empirical investigation.
Managerial decision making regarding standardization or customization of pricing
strategies in international markets should be based on a thorough analysis and assessment
of the degree of similarity (or difference) between the firm's home and host markets. In
this regard, four factors-customer characteristics and behavior, economic and legal
conditions, and stage of PLC-must be taken into account; our study suggests that these
elements are significant correlates of standardized pricing programs. Furthermore,
because the standardization versus adaptation decision is situation specific, a separate
analysis and assessment of the environmental and market conditions that prevail in each
targeted foreign market should be performed. Then, appropriate pricing strategies must
be developed with respect to each market. At the same time, however, special attention
should be paid to the coordination of business operations across different foreign markets
and the exploitation of potential scale economies and synergies with the ultimate
objective of enhancing the overall company efficiency and effectiveness.
The results of the present study substantiate the conclusion drawn in previous empirical
research (Cavusgil and Zou 1994) that success in international markets is within the reach
of management. Despite the existence of a large and complex set of factors that influence
international business activities, managers may be able to enhance the performance of
their firms by formulating and implementing marketing programs that match the
environmental and market conditions of each foreign market targeted (see Venkatraman
and Prescott 1990). It should be remembered that because pricing affects the revenue side
of the profitability equation, the ultimate long-term objective of managers in setting
international pricing policy centers on revenue maximization. This objective can be
achieved through either premium pricing when market conditions are favorable (i.e.,
demand is strong and competition is weak) or competitive pricing when they are hostile
(i.e., demand is weak and competition is intense). Sometimes, however, firms may be
forced to adopt uniform pricing across markets as a defensive measure against the graymarket imports of unauthorized intermediaries that are completely out of their control
(Cavusgil 1996).
Table 3.
Certain limitations evident in the explication of this study should be taken into account.
First, the empirical inquiry focused on a specific international market framework (i.e., the
United Kingdom), which suggests that the results may suffer from limited external
validity. Therefore, readers should exercise caution in attempting to generalize from this
investigation, especially if making inferences to other significantly different economic
settings such as former Eastern Bloc or newly industrialized regions. Testing the external
validity of the present evidence requires an examination of the issues addressed in this
study within other international business contexts.
Second, the study employed a cross-sectional research design that prevents us from
making cause/effect inferences. Future research efforts may consider the use of a
longitudinal methodology that, though costly and time consuming, can help track
dynamic phenomena such as the relationships of extent of international pricing strategy
standardization with its determinants.
Third, because of the descriptive nature of the present study, combined with the limited
amount of available empirical evidence, a relatively limited number of potential
independent variables have been examined. Further research should investigate the
significance and relative importance of other contingency factors. For example, more
emphasis should be placed on investigating the influence of various firm characteristics
and product- and/or industry-specific factors on the degree of international pricing
strategy standardization. Given the absence of pertinent empirical evidence, there is a
need for more exploratory research to gain insights into the interrelationships among
these variables and how they affect international pricing programs.
Fourth, the present study looked only into the content aspect of standardization with
reference to pricing. Another relevant aspect could be process standardization, which
involves the use of uniform structures and processes for the design, implementation, and
control of marketing programs in overseas markets (Jain 1989). Future research efforts
could add to the body of existing knowledge by exploring the extent of standardization of
the process MNCs follow in formulating their pricing strategies across different foreign
markets.
Finally, a natural extension of the present study would be to consider performance
outcomes of international pricing standardization. The pursuit of a particular international
pricing strategy makes sense from a managerial perspective only to the extent to which it
has a positive effect on the performance of the firm. Conceptual and empirical studies
focusing on the drivers and performance consequences of international marketing pricing
standardization would have important implications for both theory development and the
advancement of management practice in the field.
ACKNOWLEDGMENTS
The authors received a Best Paper Award for this article at the 2000 American Marketing
Association International Conference, Marketing Strategy for Global Organizations, in
Buenos Aires, Argentina. The authors thank the anonymous JIM and conference
reviewers for their constructive comments and helpful suggestions.
Appendix.
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[Author Affiliation]
Marios Theodosiou and Constantine S. Katsikeas
[Author Affiliation]
(c) Journal of International Marketing Vol. 9, No. 3, 2001, pp. 1-18 ISSN 1069-031X
[Author Affiliation]
THE AUTHORS
[Author Affiliation]
Marios Theodosiou is Lecturer in Marketing, School of Economics Fy Management,
University of Cyprus.
[Author Affiliation]
Constantine S. Katsikeas is Sir Julian Hodge Chair in Marketing Fr International
Business, Cardiff Business School, Cardiff University.