Tag: NEP 2020 Notes

Pricing on global markets is more difficult than pricing in domestic markets. In the domestic market, the manager knows the effects of the cultural and economic environment on pricing policies. But in the international markets, due to the lack of familiarity with foreign markets and the variety of those markets, it is not easy to decide on pricing policy.

In international markets there are fierce problems in pricing: the difference in customer response to pricing strategies by commodity in different markets, the limits imposed by governments on the level of profits and prices, the competition that determines price changes in the market, and the existence of different rules. But despite these problems, a company that wants to compete effectively and reach its goals in terms of sales and profits should consider pricing, local conditions and coordination with other elements of marketing mix. In international pricing, in addition to factors affecting domestic pricing, other factors should be considered, such as exchange rate fluctuations, currency with which prices are announced, government control over tariffs, and a group of economic and cultural factors that are found in different markets and differ with each other.

A company must have a clear understanding of the international marketing environment before deciding to expand its activities abroad. In an international pricing strategy, managers generally face a wide range of external and internal factors, and the main concern is how the managers come to terms with these factors and determine their final effect. Additionally, they should consider the political, cultural, linguistic, economic and legal differences in each market in global environment.

Penetration pricing in the International market

 Penetration pricing is the opposite of skimming in that the initial price is set very low to get the largest international market share. Internationally penetration pricing can allow profitable companies to gain access to market share in foreign countries. However, the trade policies of the foreign government would need to be considered as they might deem the low-priced products to be dumping or anti-competitive and in breach of their local legislation. As opposed to Apple, most manufactures of Android phones have a strategy of penetrating the International market.

Pre-emptive and extinction pricing strategies

Preemptive and extinction strategies are similar to penetration pricing policies in that they set the price very low in order to fight competition. Pre-emptive international pricing strategy sets the price very low so that new entrants to the international market find it uneconomical to enter that market. The example of Nintendo Wii which was first to enter the gaming market, intentionally set a low price to capture the market as a pre-emptive strategy against Sony which was to launch its Playstation. Extinction international pricing strategy is a strategy of driving away existing competitors by setting a low price that makes the business of competitors unviable. This could lead to a price war and is a risky strategy it could also lead to breaching of ‘anti-dumping or fair competition’ legislation in some countries.

Differential Pricing in International markets

As discussed above, customers in different international markets have differing value perceptions of a product as well as differing purchasing power. Besides this there could be other local factors discussed above which could affect the pricing of a product. A differential pricing strategy is a ‘horses for course’ approach allowing the firm to charge different prices across different international segments.

Differential pricing can be used by a multinational firm where it wants to pursue different pricing strategies in different markets. For example, a firm using differential pricing may pursue skimming in one geographical market and penetration pricing in another.

Components:

Costs 

The actual cost of producing a product and bringing it to market is key to determining if exporting is financially viable. 

Cost-plus method is when the exporter starts with the domestic manufacturing cost and adds administration, research and development, overhead, freight forwarding, distributor margins, customs charges, and profit. However, the effect of this pricing approach may be that the export price escalates into an uncompetitive range once exporting costs have been included. 

Marginal cost pricing is a more competitive method of pricing a product for market entry. This method considers the direct out-of-pocket expenses of producing and selling products for export as a floor beneath which prices cannot be set without incurring a loss. For example, additional costs may occur because of product modification for the export market. Costs may decrease, however, if the export products are stripped-down versions or made without increasing the fixed costs of domestic production.

Other costs should be assessed for domestic and export products according to how much benefit each product receives from such expenditures, and may include:

• Fees for market research and credit checks 
• Business travel expenses 
• International postage and telephone rates 
• Translation costs 
• Commissions, training charges, and other costs associated with foreign representatives 
• Consultant and freight forwarder fees 
• Product modification and special packaging costs 

After the actual cost of the export product has been calculated, you should formulate an approximate consumer price for the foreign market. 

Market Demand

For most consumer goods, per capita income is a good gauge of a market’s ability to pay. Some products (for example, popular U.S. fashion labels) create such a strong demand that even low per capita income will not affect their selling price. Simplifying the product to reduce its selling price may be an answer for your company in markets with low per capita income. Your company must also keep in mind that currency fluctuations may alter the affordability of its goods.  

Competition

In the domestic market, U.S. companies carefully evaluate their competitors’ pricing policies. You will also need to evaluate competitor’s prices in each potential export market. If there are many competitors within the foreign market, you may have to match the market price or even underprice the product or service for the sake of establishing a market share. If the product or service is new to a particular foreign market, however, it may actually be possible to set a higher price than is feasible in the domestic market.

Pricing Summary

It’s important to remember several key points when determining your product’s price: 

• Determine the objective in the foreign market.
• Compute the actual cost of the export product.
• Compute the final consumer price.
• Evaluate market demand and competition.
• Consider modifying the product to reduce the export price.
• Include “non-market” costs, such as tariffs and customs fees.
• Exclude cost elements that provide no benefit to the export function, such as domestic advertising.

International marketing refers to marketing which is done globally in several nations. It is a marketing which is done across national borders for fulfilling the needs of peoples worldwide. International marketing is also known as global marketing. It is the one which enables companies in reaching out to customers internationally.

International marketing is not as easy as domestic marketing. International marketing environment poses a number of uncertainties and problems. As against, national markets, international markets are more dynamics, uncertain, and challenging. Especially, cultural diversities and political realities in several nations create a plenty of barriers that need special attention. In the same way, geographical constraints cannot be totally undermined. Widespread terrorism has created a new threat to international trade.

Though the world is advancing in terms of information technology, innovative and superior methods of organizing marketing efforts (like horizontal organisation, network organisation, virtual organisation), global efforts for smooth international trades, and so forth, yet international marketing is not that much easy to pursue, it has become a challenge to accept.

Tariff Barriers:

Tariff barriers indicate taxes and duties imposed on imports. Marketers of guest countries find it difficult to earn adequate profits while selling products in the host countries. Sometimes, to prevent foreign products and/or promote domestic products, strategically tariff policies are formulated that restricts international marketing activities. Frequent change in tariff rates and variable tariff rates for various categories of products create uncertainty for traders to trade internationally. Antidumping duties levied on imports and defensive strategies create difficulty for exporters.

Administrative Policies:

Bureaucratic rules or administrative procedures both in guest countries and host countries make international (export and/or import) marketing harder. Some countries have too lengthy formalities that exporters and importers have to clear. Unjust dealings to get the formalities/ matters cleared create many problems to some international players. International marketers have to accustom with legal formalities of several courtiers where they wants to operate.

Considerable Diversities:

Different countries have their own unique civilization and culture. They pose special problems for international marketers. Global customers exhibit considerable cultural and social diversities in term of needs, preferences, habits, languages, expectations, buying capacities, buying and consumption patterns, and so forth. Social and personal characteristics of customers of different nationalities are real challenges to understand and incorporate. Compared to local and domestic markets, it is more difficult to understand behaviour of customers of other countries.

In the same way, as against domestic markets, to design and modify marketing mix over time for international markets seem more difficult. Market segmentation, product design, pricing, and distribution need more information and efforts. Promoting products in international markets is a formidable task. Message preparation and execution in suitable media in international markets is not easy game to play.

Language and religious diversities are the real challenge for international business players. There are 6000 languages in the world. China (20%) is the largest in term of native speakers, followed by English (6%), and followed by Hindi (5%). Yet English is recognized as global business language.

English speaking countries can contribute the largest share (40%) in global business. Religious diversities seem difficult to cope with as they determine needs and wants of people. At present Christianity is the largest in the world (1.7 billion), followed by Islam (1.0 billion), followed by Hinduism (750 millions), and followed by Buddhism (350 millions).

Political Instability or Environment:

Different political systems (democracy or dictatorship), different economics systems (market economy, command economy, and mixed economy), and political instability are some of real challenges that international markers have to face. Political atmosphere in different courtiers offer opportunities or pose challenges to international marketers.

Governments in different nations have their priorities, philosophies, and approaches to the international trades. They may adopt restrictive (protectionist) or liberal approach to international business operations. Especially, political approaches of dominant nations have more influence in international marketing activities.

Long-term trend of global political environment is unpredictable and uncertain. Economic policies of different nations (industrial policies, fiscal policies, agricultural policies, export-import policies, etc.,) do have direct impact on international trade. Drastic change in these policies creates endless difficulties to international traders. While dealing with international markets, international political and legal environment needs a special attention.

Place Constraints (Diverse Geography):

Trade in foreign countries of far distance itself practically difficult. In case of perishable products, it is a real challenge. Exporting and importing products via sea route and making arrangements for effective selling involves more time as well risks. Segmenting and selecting international markets require the marketers to be more careful.

Variations in Exchange Rates:

Every nation has its currency that is to be exchanged with currencies of other nations. Currencies are traded every day and rates are subject to change. Indian Rupee, European Dollar, US Dollar, Japanese Yen, etc., are appreciated or discounted at national and international markets against other currencies. In case of extraordinary and unexpected moves (ups and downs) in currency/exchange rates between two courtiers create serious settlement problems.

Norms and Ethics Challenges:

Ethics refers to moral principles, standards, and norms of conduct governing individual and firm’s behaviour. They are deeply reflected in formal laws and regulations. In different parts of the world, different codes of conduct are specified that every international business player has to observe. However, globalization process has emphasized some common ethics worldwide. Corruption is another issue relating to business ethics.

Terrorism and Racism:

Terrorism is a global issue, a worldwide problem. People of the world are living under constant fear of terrorists attracts anywhere in the world. To trade internationally is not economically risky, but there is the threat to life. Racism also restricts international trade activities.