International Marketing and Price

How should we set prices for international markets?

This lesson considers the basics of pricing for international marketing. As with all of the international marketing lessons, every country and culture within it will influence price. So here we are going to look at some of the common influences upon pricing decision-making, the impact of grey markets, international approaches to pricing, and more mainstream marketing approaches to pricing that can be applied to an international context.

Generic Marketing Approaches to Pricing.

Premium Pricing.
Penetration Pricing.
Economy Pricing.
Price Skimming.
Psychological Pricing.
Product Line Pricing.
Optional Product Pricing.
Captive Product Pricing
Product Bundle Pricing.
Promotional Pricing.
Geographical Pricing.
Value Pricing.
More…

Influences on pricing for international marketing.

The cost of manufacturing, distributing and marketing your product.
The physical location of production plants might influence price. For example, Toyota have plants in their European market, in the United Kingdom and Turkey.
Of course fluctuations in foreign currencies affect pricing. Many companies are benefiting from a relatively low US Dollar price during the 2010s. This make imports to the United States expensive, but exports relatively cheap to other nations. However fluctuations make it very difficult for companies to make long-term decisions – such as building large factories in global markets i.e. costs of production are cheap today, but could be expensive in the future, impacting upon the price that your business is forced to charge.
The price that the international consumer is willing to pay for your product.
Your own business objectives will influence price. For example, large international companies such as Starbucks may operate at a loss in some locations but still need a local presence in order to maintain their economies of scale, as well as their reputation as a global player.
The price that competitors in international markets are already charging.
Business environment factors such as government policy and taxation.

Grey Markets

A business can expect problems with grey markets where it trades across national boundaries. So if Company Y is English it will trade in Stirling or Pound notes. If it trades in the United States during the 2010s, to be competitive it will need to sell at a reduced price in the US. However, there is little to stop an entrepreneur from traveling to the US, filling up a transport container with products, which have been exported from Company Y in England, then returning them back to England and marketing the same product at a lower price than Company Y is willing to trade. This is an example of parallel trade, which is legal – just. Therefore it is known as grey marketing.

International Pricing Approaches

Export Pricing – a price is set for by the home-based marketing managers for the international market. The pricing approach is based upon a whole series of factors which are driven by the influences on pricing listed above. Then mainstream approaches to pricing may be implemented – see below.
Non-cash payments – less and less popular these days, non-cash payments include counter-trade where goods are exchanged for goods between companies from different parts of the World.
Transfer Pricing – prices are set in the home market, and goods are effectively sold to the international subsidiary which then attaches its own margin based upon the best price that local managers decide that they could achieve. Then mainstream approaches to pricing may be implemented – see below.
Standardization versus adaptation – do you use a standard, common approach to pricing in each market, or do you decide to adapt the price to local conditions?