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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 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
effect on product positioning,
market segmentation, demand
management, and market
share dynamics.
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Pricing Considerations
• Nature of the product
• Production plant locations
• Distribution system used
• Economic climate
• Currency fluctuations and
exchange rates
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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”
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Ability to Track Costs
• Products can be manufactured and assembled in
different countries.

Difficult to track costs
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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.
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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
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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

Setting price limits

Local government subsidies to manufacturers

Tariffs

Restricting repatriation of profits by multinationals

Taxing and/or encouraging reinvestment of profits
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Transfer Pricing
• Products priced at market level


Help multinational under-report profits
Decreases tax burdens in countries where company has
foreign direct investment
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Price of Protectionism
• Adds to final price paid by consumer

7% ($600b) of European Union GDP
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Environmental Influences
• Economic, Financial, Monetary

Inflation

Fluctuating exchange rates

Hard versus soft currencies

Counter trade
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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.
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Countertrade Brokers
• Perfect matches for product exchanges rare
• Exchanges are complex
• Numerous companies broker barter deals
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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
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Types of Countertrade
• Monetary Exchange
• Barter
• Clearing Agreement
• Switch Trading
• Compensation
• Counter purchase
• Offset Purchase
• Buyback Agreements
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Setting Prices
• Tends to be experience driven
• Highly decentralized
• Important for marketing managers to be familiar with
the price elasticity of their products
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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
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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
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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
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Standardized vs. Local Pricing
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
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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 imposed by:



Competition
Political and legal environment
Economic and financial environment
• Addressed international pricing decisions
Copyright Atomic Dog Publishing, 2002