1.0 Introduction
This report aims to critically review the main environmental factors affecting global pricing decisions. An analysis of Foreign Exchange Rates, Inflation Rates, Price Controls and Government Regulations has been carried out to demonstrate the external variables which international management must consider whilst taking strategic pricing decisions. It was necessary to make reference to Market Factors such as income levels and tariffs which impact exporting activities of international business organisations. Pricing Strategies implemented by international management to avoid global pricing issues such as Transfer Pricing have been presented. Examples have been used throughout to support analysis.
2.0 Pricing Definition
Kistler (1984) offers a traditional approach to Global Pricing and defines it as, “Taking the domestic product price, adding insurance and freight, putting in a hefty cushion for contingencies and slapping on a profit mark up to the exporter.” However, some would deem this definition irresponsible as it fails to consider environmental and market factors which are of particular importance to international management. Hollensen (2012) recognises that even though cost structures are vitally important, they should not be considered as the sole detriments when setting prices. (See Fig. 1)
3.0 Why is Global Pricing Important?
“Even when the international marketer produces the right product, promotes it correctly and initiates the proper channel
International marketing or business is uniquely different from the local market because the product price, place and promotion is vastly different from what is been offered to local customers (Johansson, 2000) With the emergence of the information technology, cross border marketing has never been a distant dream. However, it has never been easier even for giant multinational companies to face challenges that come in international business. The biggest challenge comes from the culture which varies from country to country.
Designing an appropriate pricing strategy is always a challenging task for most corporations, because price is a determinative factor of operating profits. Meanwhile, price can affect customer perceptions and product development. According to the basic economic theory, pricing policy should reflect the product’s costs and the relationship between supply and demand. In addition to the fundamental framework, price settle mechanism should take into consideration the underlying industry environment. For example, pricing in manufacturing is heavily cost-based with the certainty that the costs are fully covered. And conversely, in some particular sectors, there are downsides when price setting relies solely on the variable costs because of the high fixed cost. Based on this judgment, product providers should carry different pricing mechanism under different market conditions. Accordingly, pricing evolves from a purely academic topic related to the economic theories to a profits-maximising instrument involved with marketing practices. All these issues make the price setting problem more
Today, firms have to deal with a global marketplace; marketers have no other choice. Participation in global marketing has begun to shift from a mere “option” to an imperative. The world is becoming more homogeneous. Distinctions between national markets
Pricing is important when marketing a product. The determining factor for the pricing is the material, time to make, amount spent on marketing and promotion of the product. The goal in providing such a product that is moderately
Costs play an important role in setting international prices. Travelers abroad are often surprised to find that goods that are relatively inexpensive at home may carry outrageously higher price tags in other countries. Besides, such price escalation may result from differences in selling strategies or market conditions. In most instances, however, it is simply a result of the higher costs of selling in foreign markets such as the additional costs of modifying and packaging the product, higher shipping and insurance costs, import tariffs and taxes, costs associated with exchange rate fluctuations and higher channel and physical distribution costs. Futhermore, Milo also adopted Promotional Pricing strategy. Selling products is challenging when shelves are lined with similar-quality products, and customers are bombarded with advertising messages. Promotional pricing helps differentiate Milo’s product with its competitor and leverage a potential customer's attention long enough to purchase the Milo products. Promotional pricing involves lowering the price of a product, distributing coupons or offering specials, such as buy-one-get-one-free offers. For example, Milo offer promotional pricing for its product in weekly catalogue to create excitement and a sense of
Often these steps are followed by negatives. According to page 3, firms must face and understand the risks accompanied by foreign exchange, note the possible challenges of doing business with foreign markets, and identify marketing opportunities (Farooq). While these steps are carried out by all firms, they can be very daunting. This is why large firms, that are more experienced, proactively seek marketing opportunities. Due to their size, these small firms tend to be intimidated when it comes to seeking opportunities, therefore they seek them reactively. When these steps are not carried out carefully and as planned, the negatives of exportation come forth. Where most firms find themselves in trouble is when they have poorly analyzed the market in which they are trying to export, lacking expertise required to enter a foreign market, or poorly executed campaigns with their desired market. The reasons stated above are why the barter and trade system needs the two other key factors in order to successfully work.
In terms of theory, pricing strategies can be defined as businesses choosing one method to appeal to customers to purchase goods and achieve marketing mix according to the assessment of consumer demand and cost analysis (BDS Forum, 2009). For a company, pricing strategies can be made difficultly. If prices of goods are too higher, they may lose market share. If the price is two lower, the company cannot get bigger profit (Bized, 2006). Therefore, before developing a pricing strategy, the company has to consider much more factors. Such as pricing objectives which rely on production cost, barriers to entry, rate of product diffusion and so on, pricing methods including cost-plus pricing, target return pricing, value-based pricing and psychological pricing as well as other factors to make the best price for the firm and the consumer (Net MBA, 2009). Three points of views of pricing strategies can be discussed in the following in this report. Firstly, pricing strategies should
Pricing is very important because it is the only element that generates a turnover for the organization. Price supports the remaining P’s, as they are the variable cost. Pricing is difficult as it must follow the laws of supply and demand. However, the pricing response of competitors must be taken into consideration when
When practicing international marketing, a company becomes more involved in local marketing environments than it does in export marketing.
Pricing decisions are strategic and critical to the success of your company. The prices you charge for your products affect demand, thus causing a ripple effect across your company 's output, revenues, costs, and income. With a sound pricing strategy, your company is in a better
A pricing strategy takes into account segments, ability to pay, market conditions, competitor actions, trade margins and input costs, amongst others.
Avon also uses the aspect of global pricing and this is determined by the state in a certain country local market and strategic objectives. This affects the country in the way that the country with the higher price ships the same products from the country with the lower price this making the company to count loss.
Firm’s international experience, that is, the number of years a firm has been operating in the international markets plays a vital role to determine the pricing process followed by the firm (Katsikeas and Morgan, 1994). They found out that for less experienced firms, pricing issue creates less problem, whereas more experienced firms perceive pricing to be a difficult issue, although both type of firms consider pricing very important for making export decision.
Another factor that we need to keep in mind is the cultural and economic realities of these marketplaces and consumers while pricing our products. Let us begin with the pricing for the European Union market Spain. This is a rich market which is centered around good quality and ready to spend the money asked for
1.Standardization directly opposes marketing and pricing strategies because when standardization takes place everyone is bound to follow the standards, which also includes the prices of products this. When this happens, pricing strategies are no longer required (Czinkota & Ronkainen, 2007). Similarly, price is a very important factor when marketing a product when the prices are standardized marketing is no longer required. Quality of a product will more or less remain the same for every supplier as improving quality will lead to increased cost and with fixed prices profit margin of the producers will decrease. Flour is a very good example, as it is a product, which is consumed by the masses and needs to be standardized (Moran, 2006).