International Pricing Strategy

Based on three aspects :

 Price discrimination
 Strategic Pricing
 Regulatory factors
 Price Discrimination
- Charging different prices for the same product in
different countries to maximize profit.

 Two conditions are necessary for profitable

price discrimination:

1. Firm must be able to keep national markets

separate or will have arbitrage.
 Example
 A ford Escort costs $ 2000 more in Germany
than in Belgium.

 But this price discrimination was not profitable because

market was not separated.
 Dealers used to purchase Escort from Belgium and
sold them at a profit price less than Ford which was
selling in Germany.
 However, Ford practice Price discrimination
in Great Britain and Belgium.

 A ford car can cost up to $ 3000 more in UK

than in Belgium because UK market was
completely separated by introducing Right-hand–
drive cars.

 whereas in the rest of Europe Left-hand-drive

cars were used.
2. Different price elasticties of demand in
different countries. Based on factors:

 Income Level - Consumers with limited incomes

tend to be very price conscious.

 Example : Price elasticities for product like TV

sets are greater in countries like India, where a
TV is luxury whereas in US it is necessity.
  Competitive conditions – Many competitors
cause high elasticity of demand.

 In this case, more the competitors are, greater the

consumers’ bargaining power will be to buy at low
price.

If there are few competitors, consumers' bargaining

power is weaker and price is less important.
Pricing Strategy :
Strategic Pricing
 Predatory Pricing/Penetration
Pricing
 Use of price as a competitive weapon to
drive weaker competitors out of a national
market.

 Once the competitors have left market ,

firm can raise prices & enjoy high profits.

 Usually loss, because of low price

subsidized by another market’s profits.
 Example
 Matsushita, Japanese TV Firm entered in US with
same strategy to increase its market penetration.

 This loss was subsidized by profit earned at

home country.

 This approach was used by France Telecom and

Sky TV also.
 Premium Pricing
 Use a high price where there is a uniqueness about
the product or service.

 This approach is used where a substantial

competitive advantage exists.

 Example : Such high prices are charge for luxuries

such as Cunard Cruises, Savoy Hotel rooms, and
Concorde flights
 Economy Pricing
 This is a no frills low price. The cost of
marketing and manufacture are kept at a
minimum.

 Supermarkets often have economy brands

for soups, spaghetti, etc.
 Price Skimming

 Charge a high price because you have a

substantial competitive advantage. However,
the advantage is not sustainable.

 The high price tends to attract new competitors

into the market, and the price inevitably falls
due to increased supply.
 Example
 Manufacturers of digital watches used a
skimming approach in the 1970s.

 Once other manufacturers were tempted

into the market and the watches were
supplied at a lower price.
 Example cont….
 An example of price skimming is DVD
players.
 Initially in 1990s when DVD players were
launched the price of a DVD player was
$500 and $400.
 By 2001 the prices were skimmed to less
than a $100. By 2004 DVD players were
available for as low as $50 or $60.
 Psychological Pricing
 This approach is used when the marketer
wants the consumer to respond on an
emotional, rather than rational basis.

 Example: 'price point perspective' 99

cents not one dollar Or Rs.99 not RS.
100/-
 Product Line Pricing
 Where there is a range of product or
services the pricing reflect the benefits of
parts of the range.

 Example: car washes. Basic wash could

be $2, wash and wax $4, and the whole
package $6.
 Optional Product Pricing
 Companies will attempt to increase the amount
customer spend once they start to buy. Optional
'extras' increase the overall price of the product or
service.

 For example airlines will charge for optional extras

such as guaranteeing a window seat or reserving a
row of seats next to each other
 Captive Product Pricing

 Where products have complements,

companies will charge a premium price
where the consumer is captured.

 For example a razor manufacturer will

charge a low price and recoup its margin
(and more) from the sale of the only
design of blades which fit the razor.
 Example

 Computer printers and their ink cartridges

 Cell phones and air time costs
 Inexpensive cameras and prints
 Product Bundle Pricing

 Here sellers combine several products in

the same package.

 This also serves to move old stock.

 Example: Videos and CDs are often sold

using the bundle approach.
 Promotional Pricing

 Pricing to promote a product is a very

common application. There are many
examples of promotional pricing including
approaches such as BOGOF (Buy One Get One
Free).
 Geographical Pricing

 Geographical pricing is evident where there are

variations in price in different parts of the world.

 For example rarity value, or where shipping

costs increase price.
 Value Pricing

 This approach is used where external

factors such as recession or increased
competition force companies to provide
'value' products and services to retain
sales e.g. value meals at McDonalds.
Regulatory Influence on Prices
 Anti-Dumping Regulations
 Dumping is whenever a firm sells a product for a
price that is less than the cost of producing it
 Sets a floor under export prices & limits a firm’s
ability to pursue strategic pricing

 Competition Policy
 Nations have regulations to promote competition
& restrict monopoly practices
 Regulations can be used to limit the prices a firm
can charge in a given country (Hoffman-LaRoche)
 Example
 Hoffman-Laroche, a pharmaceutical manufa-
cturer had a monopoly on the supply of
Valium and Librium tranquilizer.

 British Monopolies and Merger commission

investigated and reduce overcharged price by
35 to 40 percent.
Distribution Strategy
 Means chosen for delivering product to consumer

 Retail Concentration
 Concentrated = few retailers (US malls)
 Fragmented = many w/no major share (Japan)

 Channel Length
 Number of intermediaries between producer & consumer
 Fragmented retail systems promote growth of wholesalers & lengthen the
channel (Japan, India, China)
 Internet helps shorten the channel

 Channel Exclusivity
 Exclusive = difficult for outsiders to access (shelf space in supermarkets)
 Often based on long term relationships (P&G Japan)
Choosing a Distribution Strategy
 Optimal strategy is determined by relative costs &
benefits & depends on retail concentration, channel
length & channel exclusivity

 Critical link between channel length, final selling price &

firm’s profit margin (markup -> higher price or less margin)

 Longer channels cut selling costs when retail sector is very

fragmented

 Longer channels can influence market access with long term

relationships (Apple Computer & Japanese firms)
Communication Strategy
 Communicating product attributes to
prospective customers

 Communication channels = direct selling,

sales promotion, direct marketing, &
advertising

 Communication strategy is partly defined by

choice of channel
Barriers to International
Communication
 Cultural Barriers
 A message in one country can mean something else in another
(Surf)
 Overcome by developing cross-cultural literacy

 Source & Country of Origin Effect

 Source Effects = Receiver of the message (consumer) evaluates
the message based on the status or image of the sender (Honda)
 Country of Origin = Extent to which place of manufacturing
influences product evaluation (Hyundai cars, German cars, French
wine)

 Noise Levels
 Amount of other messages competing for a potential consumers
attention (US high)
Push vs Pull Strategies
Push
 Personal selling rather than
mass media advertising –
relatively costly
 Product type = industrial
product or complex new
products – educate the
customer about features
 Channel length = short
 Media =few print or electronic
media available (or limited by
law)
Pull
 Mass media advertising to
communicate the marketing
message to a large segment
 Product type = consumer goods
 Channel length = long, more
intermediaries need consumer
to pull product through channel
 Sufficient print & electronic
media to carry the marketing
message
Global Advertising
For Standard Advertising
 Significant economic advantages –
lowers the cost of value creation by
spreading cost over many countries
 Creative talent is scarce so one
large effort better than 40-50 small
 Justification = many brand names
are global – project single brand
image
Against Standard Advertising
 Cultural differences are such that a
message that works in one nation
can fail in another
 Advertising regulations can block
implementation of standardized
advertising (Kellogg cornflakes)
 Hybrid = select some features to
include in advertising campaigns &
localize other features -> build
international brand recognition yet
customize ads to different cultures
New Product Development
 Competition is as much about technological
innovation as anything else – firm must stay
on leading edge of technology

 Technological innovation is both creative &

destructive (computer/typewriter)

 Build close links between R&D, marketing &

production
Location of R&D
 Ideas for new products are stimulated by
interactions of scientific research, demand
conditions & competitive conditions

 Rate of new product development is greater

where (centers in Japan, Europe, US)
 More $$$ is spent on basic/applied R&D
 Underlying demand is strong
 Consumers are affluent
 Competition is intense
Integrating R&D, Marketing &
Production
Failure 80%
 Development of technology for which demand is limited
 Failure to adequately commercialize promising technology
 Inability to manufacture a new product cost effectively

Cross functional integration

 Product development projects are driven by customer needs
 New products are designed for ease of manufacture
 Development costs are kept in check
 Time to market is minimized

Cross-Functional Team
 Composed of representatives of R&D, marketing & production
 Take product development from initial concept to market introduction
 Project manager who can get resources for team to succeed