PRICING IN INTERNATIONAL MARKETS:Factors influencing international pricing,

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International Marketing MKT630

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

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

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

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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