TRƯỜNG ĐẠI HỌC NGOẠI NGỮ- TIN HỌC THÀNH PHỐ HỒ CHÍ MINH

Ho Chi Minh City University of Foreign Languages – Information Technology

CHAPTER 18

PRICING FOR
INTERNATIONAL MARKETS
P h i l i p R. C a t e o r a - M a r y C. G i l l y - J o h n L . G r a h a m

NGO BINH
Senior Marketing Lecturer
FBA - HUFLIT
Feb. 2023

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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

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 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

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 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

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 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

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 How Gray-Market Goods
End Up in U.S. Stores
Exhibit 18.1

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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

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 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

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 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

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 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

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 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

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 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

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 Sample Causes and Effects
of Price Escalation

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 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

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 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

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 How Are Foreign
Trade Zones Used?
Exhibit 18.3

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 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

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 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

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 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

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 Countertrade as a Pricing Tool

• Types of countertrade
– Barter
– Compensation deals
– Counterpurchase or offset trade
– Product buyback agreement

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 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

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 Transfer Pricing Strategy

• Prices of goods transferred from a company’s

operations or sales units in one country to its
units elsewhere
– 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

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 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

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 Price Quotations

• May include specific elements affecting the price

– Credit
– Sales terms
– Transportation
– Currency
– Type of documentation required
• Should define quantity and quality

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 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

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 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

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 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

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 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

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