Skip to content Show
Chapter 12: Global PricingSummary Pricing decisions are a critical element of the marketing mix that must reflect costs, competitive factors, and customer perceptions regarding value of the product. In a true global market, the law of one price would prevail. Pricing strategies include market skimming, market penetration, and market holding. Novice exporters frequently use cost-plus pricing. International terms of a sale such as ex-works, F.A.S., F.O.B., and C.I.F. are known as Incoterms and specify which party to a transaction is responsible for covering various costs. These and other costs lead to export price escalation, the accumulation of costs that occurs when products are shipped from one country to another. Expectations regarding currency fluctuations, inflation, government controls, and the competitive situation must also be factored into pricing decisions. The introduction of the euro has impacted price strategies in the EU because of improved price transparency. Global companies can maintain competitive prices in world markets by shifting production sources as business conditions change. Overall, a company’s pricing policies can be categorized as ethnocentric, polycentric, or geocentric. Several additional pricing issues are related to global marketing. The issue of gray market goods arises because price variations between different countries lead to parallel imports. Dumping is another contentious issue that can result in strained relations between trading partners. Price fixing among companies is anticompetitive and illegal. Transfer pricing is an issue because of the sheer monetary volume of intra-corporate sales and because country governments are anxious to generate as much tax revenue as possible. Various forms of countertrade play an important role in today’s global environment. Barter, counter purchase, offset, compensation trading, and switch trading are the main countertrade options. This page is licensed under a Creative Commons Attribution Non-Commercial Share-Alike License (Links to an external site) Links to an external site and contains content from a variety of sources published under a variety of open licenses, including:Chapter 11 from the course note from the ‘Global Marketing’ course published online by Centre for Teaching and Learning (CTL) of Universiti Teknologi Malaysia (UTM) Copyright (c) is by Dr. Inda Sukati and made available under a Attribution-Noncommercial-Share Alike 3.0 license.I would like to thank Andy Schmitz for his work in maintaining and improving the HTML versions of these textbooks. This textbook is adapted from his HTML version, and his project can be found here.Pricing can be the most challenging due to different market forces and pricing structures around the world. What determines a successful export pricing strategy? The key elements include assessing your company’s foreign market objectives, product-related costs, market demand, and competition. Other factors to consider are transportation, taxes and duties, sales
commissions, insurance, and financing. As in the domestic market, the price at which a product or service is sold directly determines your company’s revenues. Your firm’s market research should include an evaluation of all variables that may affect the price range for your product or
service. If your company’s price is too high, the product or service will not sell. If the price is too low, export activities may not be sufficiently profitable or may actually create a net loss. As you develop your export pricing strategy, these
considerations will help determine the best price for your product overseas:
Key Elements of Pricing AnalysisForeign Market ObjectivesAn important aspect of your company’s pricing analysis is the determination of market objectives. For example, is your company attempting to penetrate a new market, seeking long-term market growth, or looking for an outlet for surplus production or outmoded products? Marketing and pricing objectives may be generalized or tailored to particular foreign markets. For example, marketing objectives for sales to a developing nation, where per capita income may be one-tenth of that in the United States, necessarily differ from marketing objectives for sales to Europe or Japan. CostsThe actual cost of producing a product and bringing it to market is key to determining if exporting is financially viable.
After the actual cost of the export product has been calculated, you should formulate an approximate consumer price for the foreign market. Market DemandFor most consumer goods, per capita income is a good gauge of a market’s ability to pay. Some products (for example, popular U.S. fashion labels) create such a strong demand that even low per capita income will not affect their selling price. Simplifying the product to reduce its selling price may be an answer for your company in markets with low per capita income. Your company must also keep in mind that currency fluctuations may alter the affordability of its goods. CompetitionIn the domestic market, U.S. companies carefully evaluate their competitors’ pricing policies. You will also need to evaluate competitor’s prices in each potential export market. If there are many competitors within the foreign market, you may have to match the market price or even underprice the product or service for the sake of establishing a market share. If the product or service is new to a particular foreign market, however, it may actually be possible to set a higher price than is feasible in the domestic market. Pricing SummaryIt’s important to remember several key points when determining your product’s price:
Learn More
Which type of pricing strategy suggests setting price levels that are low enough to quickly build market share?Penetration pricing
“Penetration pricing makes sense when you're setting a low price early on to quickly build a large customer base,” says Dolansky. For example, in a market with numerous similar products and customers sensitive to price, a significantly lower price can make your product stand out.
Which pricing strategy would be most appropriate for a marketer of luxury designer brands?Premium pricing
Companies that sell luxury, high-tech, or exclusive products—especially within the fashion or tech industry—often use a premium pricing strategy. Pro: Profit margins are higher since you can charge much more than your production costs.
Which of the following forms of countertrade does not require use of money or credit between parties?There are many different types of countertrade: Simple barter is a direct exchange of goods between two parties without the use of any currency as a medium of exchange.
Which pricing strategy has the advantage of being simple to calculate but has?Cost-plus pricing has the advantages of being simple to calculate, easy to justify to consumers and guaranteeing profitability.
|