• 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
• 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
Parallel Importation or Gray Markets
• On account of competition, firms may have to charge different prices from country to country
• In international marketing, this causes a vexing problem: Parallel Importation or Gray Markets
– 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
Chapter 14
Pricing for International Markets
Chapter Learning Objectives
1. Components of pricing as competitive tools in international marketing
2. The pricing pitfalls directly related to international marketing
• This chapter reviews the plethora of international pricing strategy issues
Pricing Objectives
• In general, price decisions are viewed in two ways:
– Pricing as an active instrument of accomplishing marketing objectives, or
Effects of Parallel Importation
• Parallel imports can do long-term damage in the market for trademarked products
• Customers who unknowingly buy unauthorized imports have no assurance of the quality of the item they buy, of warranty support, or of authorized service or replacement parts
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
• 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
Price Escalation (contd ..)
Price Escalation
• Price escalation refers to the added costs incurred as a result of exporting products from one country to another
There are several factors that lead to higher prices:
• For example, the ulcer drug Losec sells for only $18 in Spain but goes for $39 in Germany; and the heart drug Plavix costs $55 in France and sells for $79 in London
• Price is the only marketing mix element that generates revenues. All other elements entail costs
• Need to devote special care in pricing products as a manager’s fiduciary responsibility is to market products at a profit and increase shareholder wealth
• A company’s global pricing policy may make or break its overseas expansion efforts (due to foreign exchange complications)
• Firms also face significant challenges in coordinating (standardizing or adapting) their pricing strategies across various countries they operate in
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.
1. Costs of Exporting: the term relates to situations in which ultimate prices are raised by shipping costs, insurance, packing, tariffs, longer channels of distribution, larger middlemen margins, special taxes, administrative costs, and exchange rate fluctuations
• If a product fails, the consumer blames the owner of the trademark, and the quality image of the product is sullied
• Companies can restrict the gray market by policing distribution channels
6. The mechanics of price quotations
Introductຫໍສະໝຸດ on• Pricing strategy forms another cornerstone of a global marketing program–it represents one of the most critical and complex issues in global marketing (due to economic, financial, and mathematical implications)
• Thus, it is possible for an intermediary to buy products in countries where it is less expensive and divert it to countries where the price is higher and make a profit
3. How to control pricing in parallel imports or gray markets
Chapter Learning Objectives
4. Price escalation and how to minimize its effect
5. Countertrading and its place in international marketing practice
• Exclusive distribution, a practice often used by companies to maintain high retail -margins encourage retailers to stock large assortments, or to maintain the exclusive-quality image of a product, can create a favorable condition for parallel importing