Pricing for International Markets Chapter 18 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. PowerPoint presentation prepared by: Alfred Lowey-Ball Associate Professor of Marketing UBI-United Business Institutes Brussels, Belgium Chapter Outline • Pricing Policy • Approaches to international pricing • Full cost vs variable cost pricing • Skimming vs penetration pricing • Price escalation • Cost of exporting Deflation • Tax, Tariff, admin costs Exchange rate fluctuations • Inflation Varying currency values • Middlemen and transportation costs • Sample effects of price escalation • Lessening Price escalation • Leasing in international markets • Countertrade • Transfer Pricing • Price Quotations • Administered pricing • Pricing Policy • Approaches to international pricing • Full cost vs variable cost pricing • Skimming vs penetration pricing • Price escalation • Cost of exporting Deflation • Tax, Tariff, admin costs Exchange rate fluctuations • Inflation Varying currency values • Middlemen and transportation costs • Sample effects of price escalation • Lessening Price escalation • Leasing in international markets • Countertrade • Transfer Pricing • Price Quotations • Administered pricing Introduction Pricing strategy is one of the most critical and complex issues in global marketing (due to economic, financial, and mathematical implications) Remember price is the only marketing mix element that generates revenues. All other elements entail costs The marketing manager’s fiduciary responsibility is to market products at a profit and increase shareholder wealth, so price with care A company’s global pricing policy may make or break its overseas expansion efforts (due to foreign exchange complications) Firms face significant challenges in coordinating (standardizing or adapting) their pricing strategies across various countries they operate in Pricing Objectives • In general, price decisions are viewed in two ways: – Pricing as an active instrument of accomplishing marketing objectives, or – Pricing as a static element in a business decision • The more control a company has over the final selling price of a product, the better it is able to achieve its marketing goals • The more control a company has over the final selling price of a product, the better it is able to achieve its marketing goals • It is not always possible to control end prices • It is not always possible to control end prices • Broader product lines and the larger the number of countries involved, the more complex the process of controlling prices charged to the end user • Broader product lines and the larger the number of countries involved, the more complex the process of controlling prices charged to the end user Approaches to International Pricing 1. Full-Cost Pricing: no unit of a similar product is different from any other unit in terms of cost, which must bear its full share of the total fixed and variable cost. • There are several approaches to pricing in international markets, which include: • There are several approaches to pricing in international markets, which include: 2. Variable-Cost Pricing: firms regard foreign sales as bonus sales and assume that any return over their variable cost makes a contribution to net profit • Prices are often set on a cost-plus basis, i.e., total costs plus a profit margin • Prices are often set on a cost-plus basis, i.e., total costs plus a profit margin • This is a practical approach to pricing when a company has high fixed costs and unused production capacity • This is a practical approach to pricing when a company has high fixed costs and unused production capacity Approaches to International Pricing 3. Skimming Pricing: This is used to reach a segment of the market that is relatively price insensitive and thus willing to pay a premium price for a product 4. Penetration Pricing: This is used to stimulate market growth and capture market share by deliberately offering products at low prices • It is used to acquire and hold share of market • It is used to acquire and hold share of market