International Marketing
14th Edition
P h i l i p R. C a t e o r a
M a r y C. G i l l y
John L. Graham
Pricing
for
International Markets
Chapter 18
McGraw-Hill/Irwin
International Marketing 14/e
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
What Should You Learn?
 Components of pricing as competitive tools in
international marketing
 The pricing pitfalls directly related to international
marketing
 How to control pricing in parallel imports or gray
markets
 Price escalation and how to minimize its effect
 Countertrading and its place in international
marketing practices
 The mechanics of price quotations
18-2
Global Perspective –
the Price War
Setting the right price for a product or service

Key to success or failure
An offering’s price
 Must reflect the quality and value the consumer perceives in the
product
Globalization of world markets
 Intensifies competition among multinational and home-based
companies
The marketing manager’s responsibility
 To set and control the actual price of goods in different markets
in which different sets of variables are to be found
18-3
Pricing Policy
Pricing Objectives
Pricing as an active instrument of accomplishing
marketing objectives
 The company uses price to achieve a specific objective
Pricing as a static element in a business
decision
 Exports only excess inventory
 Places a low priority on foreign business
 Views its export sales as passive contributions to sales volume
18-4
Pricing Policy
Parallel Imports
Parallel imports
 Develop when importers buy products from distributors in one
country and sell them in another to distributors who are not part
of the manufacturer’s regular distribution system
Occur whenever price differences are greater
than cost of transportation between two markets
.
Major problem for pharmaceutical companies
Exclusive distribution
18-5
How Gray-Market Goods
End Up in U.S. Stores
Exhibit 18.1
18-6
Approaches to International Pricing
Company policy relates to net price received
 Control over end prices
 Control over net prices
Cost and market considerations
Employ pricing as part of strategic mix
 Market-oriented pricing factors
18-7
Full-Cost Versus
Variable-Cost Pricing
Variable-cost pricing
 Firm is concerned only with the marginal or incremental cost of
producing goods to be sold in overseas markets
Full-cost pricing
 Companies insist that no unit of a similar product is different
from any other unit in terms of cost
 Each unit must bear full share of the total fixed and variable cost
18-8
Skimming Versus
Penetration Pricing
Skimming
 Used by a company when the objective is to reach a segment of
the market that is relatively price insensitive
 Market is willing to pay a premium price for the value received
Penetration pricing policy
 Used to stimulate market and sales growth by deliberately
offering products at low prices
18-9
Price Escalation
Costs of exporting
 Price escalation
Taxes, tariffs, and administrative costs
 Taxes include tariffs
 Tariff – fee charged when goods are brought into a country from
another country
 Administrative costs



Include export and import licenses
Other documents
Physical arrangements for getting the product from port of entry to the
buyer’s location
18-10
Price Escalation
Inflation
 In countries with rapid inflation or exchange variation, the selling
price must be related to the cost of goods sold and the cost of
replacing the items
Deflation
 In a deflationary market, it is essential for a company to keep
prices low and raise brand value to win the trust of consumers
Exchange rate fluctuations
 No one is quite sure of the future value of currency
 Transactions are increasingly being written in terms of the
vendor company’s national currency
18-11
Price Escalation
Varying currency values
 Changing values of a country’s currency relative to other
currencies
 Cost-plus pricing
Middleman and transportation costs
 Channel diversity
 Underdeveloped marketing and distribution channel
infrastructures
18-12
Sample Causes and Effects
of Price Escalation
Exhibit 18.2
18-13
Approaches to Lessening
Price Escalation
Lowering cost of goods
 Manufacturing in a third country
 Eliminating costly functional features
 Lowering overall product quality
Lowering tariffs
 Reclassifying products into a different, and lower customs
classification
 Modify product to qualify for a lower tariff rate within
classification
 Requiring assembly or further processing
 Repackaging
18-14
Approaches to Lessening
Price Escalation
Lowering distribution costs
 Shorter channels
 Reducing or eliminating middlemen
Using foreign trade zones to lessen price
escalation
 Establish free trade zones (FTZs) or free ports


Tax-free enclave not considered part of country
Postpones payment of duties and tariffs
Dumping
 Use of marginal (variable) cost pricing
 Selling goods in foreign country below the price of the same
goods in the home market
18-15
How Are Foreign
Trade Zones Used?
Exhibit 18.3
18-16
Leasing in International Markets
Selling technique that alleviates high prices and
capital shortages
Opens the door to a large segment of nominally
financed foreign firms
 Firms can be sold on a lease option but might be unable to buy
for cash
Can ease the problems of selling new,
experimental equipment
 Because less risk is involved for the users
18-17
Leasing in International Markets
Helps guarantee better maintenance and service
on overseas equipment
Helps to sell other companies in that country
Revenue tends to be more stable over a period
of time than direct sales
Leasing disadvantages
 Inflation may lead to heavy losses at end of contract period
 Currency devaluation, expropriation and political risks
18-18
Countertrade as a Pricing Tool
A tool every international marketer must be
ready to employ
 Often gives company a competitive advantage
Russia and PepsiCo
 Trading vodka and wine for soft drinks
Countertrade – part of the market-pricing tool kit
18-19
Countertrade as a Pricing Tool
Types of countertrade




Barter
Compensation deals
Counterpurchase or offset trade
Product buyback agreement
18-20
Countertrade as a Pricing Tool
Problems of countertrading
 Determining the value of and potential demand for the goods
offered
 Barter houses
The Internet and countertrading
 Electronic trade dollars
 Universal Currency/IRTA
Proactive countertrade strategy
 Included as part of an overall market strategy
 Effective for exchange-poor countries
18-21
Transfer Pricing Strategy
Prices of goods transferred from a company’s
operations or sales units in one country to its
units elsewhere，
 known as intracompany pricing or transfer pricing
 May be adjusted to enhance the ultimate profit of company
Benefits
 Lowering duty costs
 Reducing income taxes in high-tax countries
 Facilitating dividend repatriation when dividend repatriation is
curtailed by government policy
18-22
Transfer Pricing Strategy
Objectives
 Maximizing profits for corporation
 Facilitating parent-company control
 Providing all levels of management control over profitability
Arrangements for pricing goods for
intracompany transfer
 Sales at the local manufacturing cost plus a standard markup
 Sales at the cost of the most efficient producer in the company
plus a standard markup
 Sales at negotiated prices
 Arm’s-length sales using the same prices as quoted to
independent customers
18-23
Price Quotations
May include specific elements affecting the price





Credit
Sales terms
Transportation
Currency
Type of documentation required
Should define quantity and quality
18-24
Administered Pricing
Cartels
 Exist when various companies producing similar products or
services work together

To control markets for the types of goods and services they produce
 May use formal agreements





To set prices
Establish levels of production and sales for participating countries
Allocate market territories
Redistribute profits
May take over entire selling function
 Examples



OPEC
The Trans-Atlantic Conference Agreement
De Beers
18-25
Administered Pricing
Government-influenced pricing






Establishes margins
Sets prices and floors or ceilings
Restricts price changes
Competes in the market
Grants subsidies
Acts as a purchasing monopsony or selling monopoly
18-26
Summary
Pricing is one of the most complicated decisions
areas encountered by international marketers
International marketers must take many factors
into account
 For each country
 For each market within a country
Market prices at consumer level are much more
difficult to control in international than in
domestic marketing
18-27
Summary
Controlling costs that lead to price escalation
when exporting products is:
 One of the most challenging pricing tasks facing the exporter
Countertrading is an important tool in pricing
policy
Pricing in the international marketplace
 Requires a combination of intimate knowledge of market costs
and regulations
 An awareness of possible countertrade deals,
 Infinite patience for detail
 A shrewd sense of market strategy
18-28