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International Marketing ­ MKT630
VU
Lesson # 42
PRICING IN INTERNATIONAL MARKETS
Price: A part of the marketing mix:
The price is what the customer pays. It includes direct and indirect costs as well as opportunity costs.
Direct costs are cash outlays a customer makes in order to obtain something. An example would be
admission to a national park. Direct costs are, in many cases, a relatively small part of the total cost.
Indirect costs are costs associated with obtaining something. An example would be the cost of driving to
a national park, food and entertainment along the way, etc. The total of the indirect costs is often more,
sometimes much more, than the direct cost.
The total cost is obtained by adding the direct and indirect costs.
Opportunity costs are what we give up when we do something. They can have various types of value,
sometimes monetary, sometimes not. Opportunity costs include other things you could be doing instead
of going to a national park. Examples might include mowing the lawn or going to a baseball game
(which would be non-monetary) and not working overtime on Saturday in order to go to a national park
(which would be monetary),
The price the park visitor pays to go to a national park is the total of all costs, including direct, indirect,
and opportunity. The perceived benefits of going to a national park have to be at least as great as the
total of the costs if a potential park visitor is going to make a decision to go to a park.
Determining the price:
How do you set monetary prices? There are basically two ways. I call these cost-based pricing and
value-based pricing.
Cost-based pricing is based on the total of all costs associated with delivering a product or service to a
customer. An example of cost-based pricing would be when an organization identifies all of the costs
associated with producing a product or service, adds them up, adds a margin for profit (in the business
sector) and arrives at the "price" the customer is to be charged. This type of pricing is the "floor" for
pricing decisions in that it is as low as the price can be and still cover all of the costs associated with
delivering the product or service. I'm unaware of applications of this type of pricing in the park service
world, unless it might be applied by concessionaires.
Value-based pricing is based on an organization's perception of the value the potential customer (park
visitor) might place on the product or service. An example of value-based pricing would be when an
organization believes that people would pay Rs20 for a service and decides to price it at Rs20 even
though the price might be set at Rs10 based on a cost-based model. This type of pricing is the "ceiling"
for pricing decisions in that it is as high as the price can be and still find a willing customer. It has no
relationship to the cost of production, rather it is influenced by perception of alternatives customers
face.
A subset of value-based pricing is supply/demand pricing. In this type of pricing, an organization has a
limited supply of the product or service and decides to price it just barely low enough to sell all of the
limited supply. There is no relationship to the cost of production. Sometimes applications
supply/demand pricing are labeled as gouging because the organization is perceived as taking advantage
of the situation.
Political factors undoubtedly influence some pricing decisions, such as utilities and essential
commodities. I would interpret this as politicians using a value-based price model in order to obtain
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International Marketing ­ MKT630
VU
public favor. No concern is shown for the cost of production. Part of the logic of this type of decision is
the reality that a park is a public resource and is, at least to some extent, a public good the value of
which should be available to as many citizens as possible.
In summary, pricing is quite complex. The most responsible means of pricing would probably give
some consideration to all of these pricing concepts, attempting to balance the needs and desires of the
public for access with the real costs associated with delivering the product or service. Responsible
pricing would recognize market segmentation concepts as expressed in differing demand levels and
abilities to pay and attempt to maximize revenue through pricing accordingly. The result would be either
maximizing gain or minimizing loss.
Importance of price in marketing mix:
· Price is the amount of money charged for a product or a service, or the sum of the values that
consumers exchange for the benefits of having or using the product or service
· Price is the only element in the marketing mix that produces revenue.
· Price is also the most flexible element of the marketing mix.
· The most common mistakes in setting prices are;
­ pricing that is too cost oriented
­ prices that are not revised enough to reflect the market changes
­ pricing that does not take rest of the marketing mix into account
­ prices that are not varied enough for different products, market segments & purchase occasions
Factors influencing international pricing:
·
Factors internal to an international firm
­ strategic objectives
· cost leader, differentiation, focus
· gain market share, protect market share, to maintain status quo
· revenue, profit or market share maximization
­ marketing mix policies
· product, place & promotion
­ costs
· short term vs long term cost focus
· full cost, variable cost, marginal cost pricing
­ organizational considerations
· transfer pricing
· cost vs profit center
·
Factors external to an international firm
­ nature of market (buyer or seller)
­ level of market development/sophistication
­ market demand and consumers' ability to buy
­ competitive situation & consumer surplus
­ product life-cycle-stage
­ type of packaging, environmental issues
­ distribution & marketing costs
­ transportation costs
­ government policies, tariffs, taxes & other restrictions
­ country of origin image
­ after-sales service, warranties & guaranties
­ exchange rate fluctuation
­ environmental factors
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International Marketing ­ MKT630
VU
hidden costs
­
Factors contributing the selection of final price:
·
Psychological effects of price
·
Influence of other marketing mix elements
·
Company pricing policies
·
Costs
·
Impact of price on other parties
­ distributors or dealers
­ company sales force
­ competitors
Managing price escalation in foreign markets:
· Rearrange the distribution channel
­ length of channel / exorbitant margins
· Eliminate costly features (or make them optional)
­ no-frills versions - sell core products
· Downsize the product
­ offer smaller version or a lesser count
· Assemble or manufacture the product in foreign markets
­ closer proximity to customers - lower costs
· Adapt the product to escape tariffs and taxes
­ by shifting it to different tax classification
Pricing in inflationary environments:
-
Modify components, ingredients, parts and/or packaging materials
-
Source materials from low-cost suppliers
-
Shorten credit terms
-
Include escalator clauses in long-term contracts - to hedge against inflation
-
Quote prices in a stable currency
-
Pursue rapid inventory turnovers
-
Draw lessons from other countries
Exporters strategies under varying currency conditions:
When domestic currency is WEAK...
­ Stress price benefits
­ Expand product line and add more costly features
­ Shift sourcing manufacturing to domestic market
­ Exploit export opportunities in all markets
­ Use a full-costing approach, but employ marginal-cost pricing to penetrate new or competitive
markets
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International Marketing ­ MKT630
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Speed repatriation of foreign-earned income and collections
­
Minimize expenditures in local or host country currency
­
Buy needed services (advertising, insurance, transportation, etc.) in domestic market
­
Bill foreign customers in their own currency
­
When domestic currency is STRONG...
- Engage in non-price competition by improving quality, delivery, and after-sale service
- Improve productivity and engage in vigorous cost reduction
- Shift sourcing and manufacturing overseas
- Give priority to exports to countries with relatively strong currencies
- Trim profit margins and use marginal-cost pricing
- Keep the foreign-earned income in host country; slow down collections
- Maximize expenditures in local or host country currency
- Buy needed services abroad and pay for them in local currencies
- Bill foreign customers in the domestic currency
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Table of Contents:
  1. OVERVIEW OF INTERNATIONAL MARKETING:Domestic marketing, Multinational marketing, Globalization of markets
  2. INETRNATIONAL MARKETING PROCESS:Situation Analysis, Implementation and Control, Relationship
  3. INETRNATIONAL MARKETING PROCESS:The Product Concept, The Societal Marketing Concept
  4. INETRNATIONAL MARKETING PROCESS
  5. ENGAGING IN INETRNATIONAL MARKETS:Expansion of technology, Merchandize export and import
  6. INTERNATIONAL TRADE & INVESTMENT THEORIES:Theory of Comparative Advantage, Country Similarity Theory
  7. INTERNATIONAL TRADE & INVESTMENT THEORIES:Global Strategic Rivalry Theory,
  8. INTERNATIONAL MARKETING INFORMATION REQUIREMENTS:Foreign exchange info
  9. INTERNATIONAL MARKETING INFORMATION REQUIREMENTS:The Product
  10. FOREIGN NATIONAL ENVIRONMENTS:Political systems in the world, Political risks in international markets
  11. FOREIGN NATIONAL ENVIRONMENTS:Types of legal systems,
  12. FOREIGN NATIONAL ENVIRONMENTS:Conciliation, Mediation, Global relevance
  13. ROLE OF GOVERNMENTS IN INTERNATIONAL MARKETS:Industry-level needs, Promotion of exports by governments
  14. INTERNATIONAL CULTURAL AND SOCIAL ENVIRONMENTS:The concept of culture, Attitudes & beliefs,
  15. INTERNATIONAL CULTURAL AND SOCIAL ENVIRONMENTS:Culture is a human medium
  16. DETERMINING EXPORT POTENTIAL IN INTERNATIONAL MARKETS:Political Environment
  17. DETERMINING EXPORT POTENTIAL IN INTERNATIONAL MARKETS:Product Potential
  18. INTERNATIONAL MARKETING RESEARCH PROCESS:market structure, Implementing the research plan
  19. INTERNATIONAL MARKETING RESEARCH PROCESS:Identify alternative information sources
  20. INTERNATIONAL MARKETING RESEARCH PROCESS:Issues with primary global research:
  21. INTERNATIONAL MARKETING RESEARCH PROCESS:Problems with data, Comparative Analysis
  22. MODES OF ENTRY INTO INTERNATIONAL MARKETS:Export intermediaries, Export and import management
  23. MODES OF ENTRY INTO INTERNATIONAL MARKETS:Licensing contract, Licensing risks
  24. MODES OF ENTRY INTO INTERNATIONAL MARKETS:The franchiser’s balance,
  25. MODES OF ENTRY INTO INTERNATIONAL MARKETS:Forms of countertrade, Specialized entry modes
  26. MODES OF ENTRY INTO INTERNATIONAL MARKETS:Demand factors, Political factors
  27. MODES OF ENTRY INTO INTERNATIONAL MARKETS:Drivers behind successful joint ventures
  28. MODES OF ENTRY INTO INTERNATIONAL MARKETS:Distribution agreements, Critical mass & optimism traps
  29. INTERNATIONAL STRATEGIC ALLIANCES:Impetus for international alliances, Management of strategic alliances
  30. INTERNATIONAL CONSUMER MARKETS:Model of Consumer BehaviorThe Buyer Decision Process
  31. INTERNATIONAL BUSINESS MARKETS:Nature of buying unit, Major influences on international business buyers
  32. INTERNATIONAL TARGET MARKETING:Market segmentation, Market positioning
  33. INTERNATIONAL MARKET SEGMENTATION:Geographic, Behavioral, Situational factors
  34. INTERNATIONAL MARKET SEGMENTATION:Basis for country segmentation, Stages of economics development
  35. INTERNATIONAL MARKET SEGMENTATION:Cultural Variables,
  36. INTERNATIONAL MARKET SEGMENTATION:Market coverage strategy, Socio-economic variables
  37. INTERNATIONAL MARKETING MIX - PRODUCT POLICY:Individual product decisions, Branding
  38. INTERNATIONAL MARKETING MIX – PRODUCT POLICY:
  39. INTERNATIONAL MARKETING MIX - PRODUCT POLICY:Modular Approach
  40. INTERNATIONAL MARKETING MIX – PRODUCT POLICY:Issues in labeling, Pricing, Distribution
  41. INTRODUCING NEW PRODUCTS IN INTERNATIONAL MARKETS:The new product development process
  42. PRICING IN INTERNATIONAL MARKETS:Factors influencing international pricing,
  43. ITERNATIONAL MARKETING CHANNELS:Channel membership, Vertical marketing, Control over distribution
  44. PROMOTING IN INTERNATIONAL MARKETS:Advertising, Direct marketing, Public Relationing
  45. REVISION