International Pricing:
Price may be defined as the exchange of goods or services in
terms of money. Without price there is no marketing, in the society. To a
manufacturer, price represents quantity of money (or goods and services in a
barter trade) received by the firm or seller. To a customer, it represents
sacrifice and hence his perception of the value of the product. Conceptually,
it is:
Price =
Quantity of money received by the seller / Quantity of goods and services
rendered received by the buyer
The term ‘price’
needs not be confused with the term ‘pricing’. Pricing is the art of
translating into quantitative terms (rupees and paise) the value of the product
or a unit of a service to customers at a point in time.
According to
Prof. K.C. Kite, “Pricing is a managerial task that involves establishing
pricing objectives, identifying the factors governing the price, ascertaining
their relevance and significance, determining the product value in monetary
terms and formulation of price policies and the strategies, implementing them
and controlling them for the best results”.
Pricing refers to the value determination process
for a good or service, and encompasses the determination of interest rates for
loans, charges for rentals, fees for services, and prices for goods. Pricing
decisions are difficult to make even when a company operates only in a domestic
market, and the difficulty is still greater in international markets. Multiple
currencies, trade barriers, additional cost considerations, and longer
distribution channels make price determination more complex in international
markets.
Globalization of business has put increased
pressure on the pricing systems of companies which enter international markets.
These companies have to adapt their pricing structures as they graduate from
being purely domestic players to exporters, and then to overseas manufacturers.
The earlier pricing structures used by them may no
longer be appropriate in the complex international environment characterized by
high competition, more global players, rapid changes in the technology, and
high-speed communication between markets.
Companies operating in international markets have
to identify:
1) The best approach for setting prices worldwide.
2) The variables those are important in determining
prices in international markets.
3) The level of importance that needs to be given
to each variable.
4) The variance in prices across markets.
5) The variance in prices across customer types.
6) The factors to be considered while determining
transfer prices,
Pricing in International Marketing Environment
For international markets,
pricing is one of the most important elements of marketing product mix,
generates cash and determines a company’s survival.
Pricing, as part of the
marketing mix, is essential and has been always one of the most difficult
decisions in marketing because of increased competition, counterfeit
activities, regional trading blocks and volatile exchange rates. Consumers have
different perception of the products depending on the price. Therefore, pricing
products for consumers is a difficult task, mainly because a high price may
cause negative feelings about products, and also a low price can be misleading
on other products features such as quality.
There are many pricing
objectives that lead to different strategies. Some of the ways of pricing a
product is: premium and penetration pricing, price skimming, economy and
psychological pricing, product bundle pricing etc. However, the situation is
further complicated when it comes to pricing for international and global
markets. Setting prices for international markets is not an easy task.
Decisions with regards to product, price, and distribution for international
markets are unique to each country. Furthermore, other factors such as: the
ROI, market stabilization, demand and competition-led pricing, market
penetration, early cash recovery, company and product factors, market and
environmental factors, as well as economic, political, social and cultural
factors, have to be considered in the decision-making process.
Pricing for international
markets involves other factors related to foreign customer behaviors such as:
economic and political aspect of target market, education and technological,
values and attitudes, social and cultural, language, religion and beliefs,
legal as well as competitive factors to mention a few.
Products have to be
distributed through the most appropriate channels and priced according to local
market environment conditions. Local market conditions may be different and
companies have to adapt to the needs of local customers. The PEST (Political, Economic, Social,
Technological) factors have been used to analyze foreign market
opportunities.
Environmental monitoring
should continue throughout the business cycle. Since marketers must comply with
the law, an understanding of governmental policy and the process by which it is
created is central to effective marketing decision-making.
To operate, international
firms must understand the policy-making process and different categories of
laws, and marketers must also investigate the general policy climate and local
laws that affect the operation of their business. The main objective of
marketing strategy is pivotal to customer satisfaction, financial performance,
and compliance.
Political
Factors
Pricing is influenced by laws
and regulations which necessitate product modifications, in compliance with
health and safety standards, environmental regulations, measures systems etc.
Government policies influence the legislative and economic frameworks. Perhaps
the most sinister cloud from the political arena is the threat of wars.
Economic
Factors
The level of GDP is the main
measure of economic attractiveness of foreign markets. As GDP increases, the
demand for goods and services increases too. Furthermore, marketers consider
the distribution of income within a country, in order to identify niche and
segment markets. Marketers always watch not only the present economic
prosperity of a country, but also its future development in terms of population
and density, inflation and economic growth, age and distribution of income,
level of urbanization as well as other economic activities that will affect
markets and pricing.
The economic environment of
the foreign or host country influences pricing decisions. It has a significant
impact on firm’s costs, determines demand potential for a particular
product/service, in addition to the prices that local customers can afford and
are willing to pay. For example, some products that are considered essential in
western countries, are viewed as luxury items in my country (India), and most
of the Asian countries.
Social
Factors
People from different cultures
have different tastes, buy different products and respond in different ways to
the same service or product. Therefore, the demographic structure of a foreign
market should be considered. The aging of population in major western markets,
and the increase in population in several countries such as India and China, is
another continuing development that will affect international marketing. As
teens around the world are becoming a global market segment today, pricing strategies
will have to adapt to social factors, that is, when pricing for international
markets, one has to take into consideration of local material culture,
language, aesthetics, education and religion, as well as attitudes and values.
Firms / Markets need to examine carefully target market, country’s
characteristics and purchasing behaviors, required to select appropriate
pricing strategy. Price level is an important criterion used by consumers in
evaluating competing products. Other criteria such as product quality and
performance are important to customers. Thus, in developing pricing strategy,
firms / organizations must be aware of foreign consumers’ preferences,
perceptions, and purchasing behaviors with respect to various price levels.
Technological
Factors
Firms / Organizations need to
analyze the technological environment of foreign markets. Well-developed
communication infrastructure is an important factor to respond rapidly to
customer’s needs. International Firms / Organizations often rely on existing
local distribution infrastructure in order to transport and distribute their
products to consumers. This may have significant impact on costs, and in turn
may influence price, as well as profits. Technological change is another
dynamic but ongoing phenomenon. A perfect example is the internet. Internet
allows online contact with the Firms / Organizations customers, suppliers, and
partners and subsidiaries around the world, but it may also increase the
opportunities for existing competitors and openings for new competitors.
Therefore, technology provides both opportunities and challenges. Pricing is a
strategic choice, and it will be partially influenced by environmental factors.
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