This document discusses international pricing considerations and strategies. It covers several key points: 1) Global pricing is one of the most critical and complex issues in international marketing, as companies must set prices that reflect local market conditions while coordinating prices across countries. 2) A company's pricing policy can make or break its overseas expansion efforts. Setting the right price that reflects the value to local consumers is important for success. 3) There are several approaches to international pricing, including full-cost versus variable-cost pricing, skimming versus penetration pricing, and adapting pricing policies versus maintaining uniform pricing globally.

1. International Pricing
Decisions
Timothy Esemu (PhD)

2. International Pricing Considerations
Global pricing is one of the most critical and complex issues in
international marketing.
Price is the only marketing mix instrument that creates
revenues. All other elements entail costs.
A company’s global pricing policy may make or break its
overseas expansion efforts.
Multinationals also face the challenges of how to coordinate
their pricing across different countries.

3. International Pricing Perspective
Setting the right price for a product or service can be the key to
success or failure.
An offering’s price must reflect the quality and value the consumer
perceives in the product.
As the globalization of world markets continues, competition
intensifies among multinational and home-based companies.
The marketing manager’s responsibility is to set and control the
actual price of goods in different markets in which different sets of
variables are to be found.

4. Pricing Policy
Pricing Objectives
Pricing as an active instrument of accomplishing marketing
objectives.
 The company uses price to achieve a specific objective.
Pricing as a static element in a business decision.
 Exports only excess inventory.
 Places a low priority on foreign business.
 Views its export sales as passive contributions to sales volume.

5. Pricing Policy
Parallel Imports
Occurs whenever price differences are greater than the cost of
transportation between two markets.
Major problem for pharmaceutical companies.
Exclusive distribution.
Parallel imports develop when importers buy products from
distributors in one country and sell them in another to distributors
who are not part of the manufacturer’s regular distribution system.

6. Role of Pricing
Determines success or failure
Segments markets;
Defines products;
Creates customer incentives;
Sends signals to competitors.

7. Approaches to International Pricing
Full-Cost versus Variable-Cost Pricing
Variable-cost pricing – the firm is concerned only with the
marginal or incremental cost of producing goods to be sold
in overseas markets.
Full-cost pricing – companies insist that no unit of a similar
product is different from any other unit in terms of cost and
that each unit must bear its full share of the total fixed and
variable cost.

8. Approaches to International Pricing
Skimming versus Penetration Pricing
Skimming – a company uses when the objective is to reach a
segment of the market that is relatively price insensitive and
thus willing to pay a premium price for the value received.
Penetration pricing policy – used to stimulate market and
sales growth by deliberately offering products at low prices.
It is used and appropriate to saturate market prior to
imitation by competitors.

9. Basic Pricing Concepts
The International Manager must develop systems and
policies that address:
Price Floors;
Price Ceilings;
Optimum Prices.
Must be consistent with global opportunities and
constraints.

10. Global Pricing Objectives and Strategies
Managers must determine the objectives for the pricing
objectives:
Unit Sales;
Market Share;
Return on investment.
They must then develop strategies to achieve those
objectives:
Penetration Pricing;
Market Skimming.

11. Price Escalation
A situation where travelers abroad are surprised to find goods that
are relatively inexpensive in their home country being priced
outrageously high in other countries.
Why Price Escalation?
Costs of exporting:
Taxes, tariffs, and administrative costs:
 Tariff – fee charged when goods are brought into a country from
another country.
 Administrative costs include export and import licenses, other
documents, and the physical arrangements for getting the product
from port of entry to the buyer’s location.

12. Price Escalation (continued)
Inflation:
In countries with rapid inflation or exchange variation, the selling price must be
related to the cost of goods sold and the cost of replacing the items.
Deflation:
In a deflationary market, it is essential for a company to keep prices low and
raise brand value to win the trust of consumers.
Exchange rate fluctuations:
 No one is quite sure of the future value of the currency.
 Transactions are increasingly being written in terms of the vendor company’s
national currency.

13. Price Escalation (continued)
Varying currency values:
 Changing values of a country’s currency relative to other currencies.
 Cost-plus pricing.
Middleman and transportation costs:
 Channel diversity.
 Underdeveloped marketing and distribution channel infrastructures.

14. Approaches to Lessening Price Escalation
Lower Cost of Goods:
 Lower Manufacturing Costs;
 Eliminate Functional Features;
 Lower Quality.
Lower Tariffs:
 Tariff Reclassification;
 Product Modification;
 Partial Assembly;
 Repackaging.
Lower Distribution Costs:
 Shorten Channels of Distribution;
 Lower Shipping Costs.
Foreign Trade Zones-Payment of import duties is postponed until product leaves FTZ &
enters the country.

15. Target Costing – 8 Questions
1. Does the price reflect the product’s quality?
2. Is the price competitive given local market conditions?
3. Should the firm pursue market penetration, market skimming, or some
other pricing objective?
4. What type of discount (trade, cash, quantity) and allowance (advertising,
trade-off) should the firm offer its international customers?
5. Should prices differ with market segment?
6. What pricing options are available if the firm’s costs increase or decrease?
Is demand in the international market elastic or inelastic?
7. Are the firm’s prices likely to be viewed by the host-country government
as reasonable or exploitative?
8. Do the foreign country’s dumping laws pose a problem?

16. Target Costing
Cost-Based Pricing is based on an analysis of internal and external
cost.
Firms using western cost accounting principles use the Full
absorption cost method
 Per-unit product costs are the sum of all past or current direct and
indirect manufacturing and overhead costs.
Rigid cost-plus pricing means that companies set prices without
regard to the eight foundational pricing considerations
Flexible cost-plus pricing ensures that prices are competitive in the
contest of the particular market environment

17. Terms of the Sale
• Incoterms make international trade easier and help traders in
different countries to understand one another. These standard trade
definitions that are most commonly used in international contracts
are protected by ICC copyright
• Ex-works – seller places goods at the disposal of the buyer at the time
specified in the contract; buyer takes delivery at the premises of the seller
and bears all risks and expenses from that point on.
• Delivery duty paid – seller agrees to deliver the goods to the buyer at the
place he or she names in the country of import with all costs, including duties,
paid.

18. Price Quotations
May include specific elements affecting the price:
 Credit;
 Sales terms;
 Transportation;
 Currency;
 Type of documentation required.
Should define quantity and quality.

19. Administered Pricing
Cartels
Exists when various companies producing similar products or services work
together to control markets for the types of goods and services they produce.
Example: OPEC
Government-influenced pricing
 Establish margins;
 Set prices and floors or ceilings;
 Restrict price changes;
 Compete in the market;
 Grant subsidies;
 Act as a purchasing monopoly or selling monopoly.

20. Dumping
In international trade, this occurs when one country exports a
significant amount of goods to another country at prices much lower
than in the domestic market.

21. © 2005 Prentice Hall 11-21
International
Pricing
Strategies
Analytic
Dimensions
Decision-
Making
Decision-
Making
Company Internal
Factors
Profitability
Transports Costs
Tariffs
Taxes
Production Costs
Channel Costs
International Pricing Strategies
Market Factors
Income Levels
Competition
Customers’ Culture
Environmental
Factors
Foreign Exchange
Rates
Inflation Rates
Price Controls
Regulations
Market-by-Market
Pricing
Uniform Pricing
Managerial
Issues
Transfer Pricing
Foreign Currencies
Parallel Imports/Grey
Markets
Export Price Escalation
Global Pricing Strategies
Financing International
Transaction
Risks
Customer-Arranged vs.
Supplier-Arranged
Source of Financing
Commercial Banks
Governments
Non-cash Transactions:
Counter-trading
Source: Jeannet & Hennessey, 2001

22. Environmental Influences on Pricing Decisions
Currency Fluctuations;
Inflationary Environment;
Government Controls, Subsidies, Regulations;
Competitive Behavior;
Sourcing.

23. International Pricing: Three Policy Alternatives
Extension;
Adaptation;
Geocentric.

24. Gray Market Goods
Trademarked products are exported from one country to
another where they are sold by unauthorized persons or
organizations.
Occurs when product is in short supply, when producers use
skimming strategies in some markets, and when goods are
subject to substantial mark-ups.

25. Dumping
Sale of an imported product at a price lower than that normally
charged in a domestic market or country of origin.
Occurs when imports sold in any country market are priced at either
levels that represent less than the cost of production plus an 8%
profit margin or at levels below those prevailing in the producing
countries.
To prove, both price discrimination and injury must be shown.

26. Price Fixing
Representatives of two or more companies secretly set similar prices
for their products.
Illegal act because it is anticompetitive
Horizontal price fixing occurs when competitor within an industry
that make and market the same product conspire to keep prices high.
Vertical price fixing occurs when a manufacture conspires with
wholesalers/retailers to ensure certain retail prices are maintained.

27. Transfer Pricing
Pricing of goods, services, and intangible property bought and sold
by operating units or divisions of a company doing business with an
affiliate in another jurisdiction.
Intra-corporate exchanges:
 Cost-based transfer pricing.
 Market-based transfer pricing.
 Negotiated transfer pricing.

28. Transfer Pricing Strategy
Benefits:
 Lowering duty costs;
 Reducing income taxes in high-tax countries;
 Facilitating dividend repatriation when dividend repatriation is curtailed by
government policy.
Arrangements for pricing goods for intra-company transfer:
 Sales at the local manufacturing cost plus a standard markup;
 Sales at the cost of the most efficient producer in the company plus a
standard markup;
 Sales at negotiated prices;
 Arm’s-length sales using the same prices as quoted to independent
customers.

29. END: GOOD LUCK!!