Introduction

Setting the right price for a product or service can be the key to success or failure. Even when the
international marketer produces the right product, promotes it correctly and initiates the proper
channel of distribution the effort fails if the product is no properly priced.
When exporting or managing overseas operations, the managers responsibility to set and control
the actual price of goods in different markets in which different sets of variables are to be found:
different tariffs, costs, attitudes, competition, currency fluctuations and methods price quotations.

Pricing Policy
The country in which business is being conducted, the type of product, variations in competitive
conditions and other strategic factors affect pricing activity, and price and terms of sale cannot be
based on domestic criteria alone.

Pricing objectives:
In general, price decisions are viewed two ways: Pricing as an active instrument of accomplishing
marketing objectives or pricing as a static element in a business decisions.
If prices are viewed as an active instrument the company uses price to achieve a specific objected,
whether a targeted return on profit, a targeted market share, or some other specific goal. The
company that follows the second approach, pricing as a static element, probably exports only execs
inventory places a low priority and foreign business and views it sales volume.

Parallel Imports:
Parallel imports develop when importer buy products from distribution in one country and sell them
in another to distributors who are not part of the manufacturers regular distribution system. This
practice is lucrative when wide margins exist between prices for the some products in different
countries.
Gravy marketing is the distribution of trade marked products in a country by unauthorized persons.
Sometimes, gray marketers bring a product produced in one country. Restrictions brought about by
import quotas and high tariffs also can lead to parallel imports attractive.
The Possibility of a parallel market occurs whenever price differences are greater than the cost of
transportation between two markets.
Exclusive distribution, a practice often used by companies to maintain high retail margins is order
to encourage retailers to provide extra service to customers, to stock large assortments, or to
maintain the exclusive quality image of a product, can create a favorable condition for parallel
importing.

Approaches to International Pricing

Cost and market conditions are important, a company can not sell goods below cost of productions
and remain in business, and it can not sell goods at a price unacceptable in the market place.
Firms that comply pricing as part of the strategic mix, however, are aware of the such
alternatives as market segmentation from country to country or market, competitive pricing in the
1
market place, and other market oriented factors including cultural differences in perceptions of
pricing.

1. Full-cost versus Variable cost pricing:

These firms may be able to price most competitively in foreign markets, but because they are
selling products abroad at lower net prices than they are selling them in the net domestic markets,
they may be subject to charges of dumping.
On the other hand, companies following the full-cost pricing philosophy insist that no unit of a
similar product is different from any other unit in terms of cost and that each unit must near its full
share of the total fixed and variable cost. In such cases, prices are often.
Set on a cost plug basis, that is, total costs plus a profit margin.

2. Skimming versus penetration Pricing:

A company uses skimming when the objective is to reach a segment of the market that is
relatively price incentive and thus willing to pay a premium price of the value received. If limited
supply exists, a company may follow a skimming approach in order to supply, when a company is
the only seller of a new or motivate product, skimming price may be used to maximize profits until
competition forces a lower price.
A penetration pricing policy is used deliberately offering products at law prices. Penetration
pricing most often is used to acquire and hold share of market as a competitive maneuver.
Penetration pricing may be a more profitable strategy than skimming if it maximizes revenues as a
base for fighting the competition that is sure to come.

3. Market holding:
The market holding strategy is frequently adapted by companies that want to maintain their share of
the market. In single country marketing, this strategy often reacting to price adjustments by
competitors. For example, when one airline announces special bargain fares, most competing
carriers must match the offer or risk losing passengers.

4. Using Sourcing as a Strategic pricing tool:

The global marketer has several options when addressing the problem of price escalation. The
choice are dictated in past by product & market competitions. Marketers of domestically
manufactured finished products may be forced to switch to lower-income lower wage countering
for the sourcing of certain components or even of finished goods to keep costs & Pisces
competitive.
The problem with shifting production to low wage country is that it provides a one time
advantage. This is no substitute for on going innovation in creating value. High income countries
are the home of thriving manufacturing operations run by companies that have been creative in
figuring out wags to drive down the cost of labor as a percentage of total costs and in creating a
unique value.

2
 Another option is to source a finished product near or in target markets. Companys canister
into one of the arrangements, such as licensing, joint ventures or a technology transfer agreement.
With this option the company has a presence in the market it is trying to penetrate; price escalation
due to high home country manufacturing costs and transportation charges is no longer an issue.
The third option is a through audit of the distribution structure in the target markets. A
rationalized of the distribution structure can substantially reduce the total mark ups required
rationalization may include selecting new intermediaries assigning new responsibilities to old
intermediaries, or established direct marketing operations.

Price Escalation
Excess price exist in some international markets, but generally the cause of the its proportionate
difference in price between the exporting country and the importing country, here termed price
escalation, is the added costs incurred as a result of exporting products from one country to another.
1. Cost of Exporting: Cost of exporting relates to situations in which ultimate price are raised by
shipping costs, insurance, packing, tariffs, longer channels of distributions. The majority of these
costs arise as a direct result of moving goods across borders from one country to another.
2. Taxes, Tariffs and administrative costs:
Nothing is surer than death and taxes has a particularly familiar ring to the ears of the
international trader. Taxes and tariffs affect the ultimate consumer price for a product, in most
instances; the consumer bears the burden of both.

In addition to taxes and tariffs, a variety of administrative costs are directly associated with export
and importing a product.
Export and import licenses, other documents and the physical arrangements for getting the product
from port of entry to entry to buyers location mean additional costs. Although such cost of
exporting.
3. Inflation: Inflation and piece control of companies, they use a variety of techniques to inflation
pressure and price controls. They may charge for extra services, inflate costs in transfer pricing, or
break up products into components and price each component separately.
4. Deflation: In a deflationary market, it is essential for a company to keep prices low and raise
brand value to win the trust of customers.
5. Exchange rate of Fluctuations: Now all major currencies are floating freely relative to one
another, no one is quite sure of the future value of any currency. Increasingly, companies are
insisting that transactions be written in terms of the vendor companys national currency and
forward hedging is bearing more common.
Varying Currency Values: In addition to risk from exchange rate variations, other risks result from
the changing values of a countrys currency relative to other currencies.
When the value of the dollar is weak relative to the buyers currency, cornonics generally employ
cost-plus pricing. To remain price competitive when the dollar is strong, companies must find ways
to offset the higher price caused by currency offset the higher price caused by currency values.

3
6. Varying Currency Values:
In addition to risks from exchange rate variations, other risks result from the changing values of a
countrys currency relative to other currencies.
When the value of the dollar is weak relative to the buyers currency, companies generally employ
cost-plus pricing to remain price competitive when the dollar is strong, companies must find ways
to offset the higher price caused by currency values.
7. Middle man and Transportation cost:
The fully integrated marketer operating abroad faces various unanticipated costs because
marketing and distribution channel infrastructures are underdeveloped in many countries. The
marketer can also incur added expenses for warehousing and hand ling of small shipments and may
have to bear increased financing costs when dealing with underfinanced middlemen.

Exporting also incurs increased transportation cost when moving goods from one country to
another. If the goods go over water, insurance, packing and handling are additional costs not
generally added to locally produced goods.
8. Govt. Controls and Subsidies: In govt. action limits the freedom of management to adjust
prices; the governance of margins is definitely compromised. Under certain conditions, government
action is a real threat to the profitability of a subsidiary operation govt. control can also take the
form of prior cash deposit requirement imposed on importers. This is a requirement that a company
has to tie up funds in the form of a non- interested- bearing deposit for a specified of time if it
wishes to import products.
Govt. subsidies can also force a company to make strategic use of sourcing to be price
competitive.
9. Competitive Behavior: Pricing decisions are bounded not only by cost and the nature of
demand but also by competitive action. If competitors do not adjust their price in response to rising
costs, management even if actually aware of the effect of rising costs on operating margins will
be severely constrained in its ability to adjust price accordingly. Conversely, if competitors are
manufacturing or sourcing in a lower cost country, it may be necessary to cut prices to stay
competitive.
10. Price and Quality Relationship: The lack of string price quality relationship appears to be an
international phenomenon. This is not surprising and rely more on product appearance and style
and less on technical quality as measured by testing organizations.

Sample Effects of Price Escalation

A constant net price is received by the manufacturer, that all domestic transportation costs
are observe bed by the various middle man and reflected in there margins and that the foreign
middle have the same margins foreign middlemen. In some instances, foreign middleman margins
are lower, but it is equally problems that these margins could be greater. In fact, in many instances,
middlemen use higher whole sale and retail margins for foreign goods than for similar domestic
goods.

4
Unless some of the cost that creates price selection can be reduced the marketer is faced with a
price that may conflict sales to a limited segment of wealthy, price incentive customers.
In many markets, buyers have less purchasing power and can be easily priced out of the market
further, once price escalation is set in motion it can spiral inward quickly. When the price to
middlemen in high and turnover is low, they may insist on higher margins to defray their costs,
which of courses, raised the price even higher. Unless price escalation can be reduced, marketers
find that the only buyers left one the wealthier ones. If marketers are to compete successfully in the
growth of markets around the world, cost containment must be among their highest priorities. If
cost can be reduced anywhere along the chain from manufacturers cost to returned markups, price
escalation will be reduced.

Approaches to reducing/Lessening Price Escalation

Three methods used to reduce costs and lower price escalation are lowering cost of goods,
lowering tariffs and lowering distribution costs.
1. Lowering cost of goods:
If the manufacturers price can be lowered, the effect is felt throughout the chain. One of the
important reasons for manufacturing in a third country is an attempt to reduce manufacturing costs
and thus price escalation.
Lowering manufacturing costs can often have a double benefit. The lower price to the buyer may
also even lower tariffs, since most tariffs are levied on advalorem basis.
2. Lowering tariffs:
When tariffs account for a large of price escalation, as they often products can be reclassified into a
different and lower customs classification.
3. Lowering Distribution costs:
Shorter channels can help keep prices under control. Designing a channel that has fewer middlemen
may lower distribution costs by reducing or eliminating middleman markup. Besides eliminating
markups, fewer middlemen may mean lower overall takes middlemen may mean lower overall
takes.
Using Foreign Trade Zones to lessen Price Escalation: By shipping unassembled goods to
foreign trade zones (FTZ) in on importing country, a marketer can lower costs in a variety of ways:

- Tariffs May be lower because duties are typically assessed at a lower rate for unassembled reuses
assembled goods.
- If labor costs are lower in the importing country, substantial saving may be realized in the final
product cost.
- Ocean transportation rates are affected by weight and volume, thus unassembled grads may
qualify for lower freight rates.

- If local content, such as packaging or component parts, can be used in the final assembly, tariffs
may be further reduced.

5
 All in all, a foreign or free trade zone is an important method for controlling price
escalation.

Dumping:
Various economists define dumping differently. One approach classified international shipments as
clumped of the products are sold below their cost of production. Another approach characterizes
dumping as selling goods in foreign market below the price of same goods in the home market.

Dumping is rarely an issue when world markets are strong. In the 1980, and 1990 dumping become
a major issue for a large number of industrials when excess production capacity relative to home
country demand caused many companies to price their goods on a marginal cost basis. In a classic
case of dumping, prices are maintained in the home country market and reduced in foreign markets.
Leasing in International Markets:
An important selling technique to alleviate high price and capital shortages for capital
equipment in the leasing system. The concept of leasing has become increasingly important as a
means of selling capital equipment in overseas markets.
The system of leasing used by industrial exporters is similar to the typical lease contracts.
Terms of the lease usually run one to five years, with payments made monthly or annually, included
in the rental fee are servicing, repairs and space parts. Just as contracts for domestic and overseas
leasing arrangements are similar, so are the basic motivation and the shortcomings.
Motivations:
1. Leasing opens the door to a large segment of nominally financed foreign firms that can be
sold on a lease option but might be unable to buy for cash.
2. Leasing can case the problems of selling new, experimental equipment, because less sick
is involved for the users.
3. Leasing helps guarantee better maintenance and service on overseas equipment.
4. Equipment leased and in use helps to sell other companies in that country.
5. Lease revenue lends to be more stable over a period of time than direct sales would be.
Shortcoming:
1. In a country beset with inflation lease contracts that include maintenance and supply
parts can lead to heavy losses toward the end of the contract period.
2. Countries where leasing is most attractive are those where spiraling inflation is most
likely to occur.
3. The added problems of currency devaluation, expropriation or other political risks are
operative longer than it the sale of the same equipment is made outright.
4. Besides the inherent disadvantages of leasing, some problems are compounded by
international relationship.

6
 Counter trade as a pricing tool
Counter trade is a pricing tool that every international marketer must be ready to use and the
willingness to accept a counter trade often gives the company a competitive advantage. The
challenges of counter trade must be renewed from the same perspective as all other variations in
international trade. Marketers must be aware of which markets require counter trades just as they
must be aware of social customs and legal requirements.

Types of counter trade

Counter trade includes four distinct transactions
1) Barter
2) Compensation deals
3) Counter Purchase
4) Buy Back

Barter is the direct exchange of goods between two parties in a transaction compensation deals
involve payment in goods and in cash.
An advantage of a compensation deal over barter is the immediate cash settlement of a portion of
the bill the remainder of the cash is generated after successful sale of the goods received. If the
company has a use for the goods received, the process is relatively simple and uncomplicated. On
the other hand if the seller has to rely on a third party to find a buyer, the cost involved must be
anticipated in the original compensation negotiation if the net proceeds to the seller are to equal the
market price counter purchase or offset trade, is probably the most frequently used type of counter
trade. For this trade, the seller agrees to sell a product at a set price to a buyer and receives payment
in cash. However two contracts are negotiated. The first contract is contingent on a second contract
that is an agreement by the original seller to buy goods from the buyer for the original seller to buy
goods from the buyer for the total monetary a mount involved in the first contract or for a set
percentage of that amount.

Product buy back agreement is fourth type of product type of counter trade transaction. This type of
agreement is made when the sale involves goods or services that product other goods and services
that is production equipment or technology accept as partial payment a certain portion of the
output.

Problem of counter trading:

The crucial problem confronting a seller in a counter trade negotiation is determining the
value of and potential demand for the goods offered. Frequently there is inadequate time to conduct
a market analysis in fact it is not unusual to have sales negotiations almost completed before
counter trade is introduced as a requirement in the transaction. Although such problems are difficult
to deal with they can be minimized with proper preparation. In most cases where losses occurred in
counter trades, the seller was unprepared to negotiate in anything other than cash. Some
preliminary research should be done in anticipation of being houses specialize in trading goods

7
acquired through barter arrangements and are the primary outside source of and for companys best
by the uncertainty of a countered. Although barter houses, most of which are found in Europe can
find a market for bartered goods, if requires time which puts a financial stein on a company because
capital is tied up longer than in normal transactions.

The internet and counter trade

The internet may become the most important venue for counter trade activities. Finding
markets for bartered merchandise and determining market price are two of the major problems with
counter trade. Several better houses have Internet acting sites and a number of Internet exchanges
are expending to include global barter.
Some speculate that the Internet may become the vehicle for an immense online electronic
barter economy, to complement and expand the offline barter exchanges that take place now. In
short some type of electronic trade dollar would replace national currencies in international trade
transactions. This would make international business considerably easier for many countries
because it would lessen the need to acquire sufficient U.S currency or other hard currency to
complete, a sale or purchase.

Proactive Counter trade Strategy

Currently most companies have a reactive strategy that is they use countertrends when they believe
it is the only to make a sale. Even when these companies include counter trade as permanent feather
of their operation, they use it to react to a sales demand rather than using counter trade as an
aggressive marketing tool for expansion.
A proactive counter trade strategy is the most effective strategy for global companies that
market to exchange- poor countries. Companies with a proactive strategy make a commitment to
use see counter trades aggressively as a marketing and pricing tool. They see counter trades as an
opportunity to expand markets rather than as an inconvenient reaction to market demand.
Successful counter trade transactions require that the marketer accurately establish the
market value of the goods being offered and dispose of the bartered goods once they are received.
Most unsuccessful counter trade results from not properly resolving one or both of these factors.
Unsuccessful counter trades are generally the result of inadequate planning and preparation.
One experienced counter trade. Suggests answering the following question before entering into a
counter trade agreement:
1. Is there a ready market for the goods bartered?
2. Is the quality of the goods offered consistent and acceptable?
3. Is an expert needed to handle the negotiations?
4. Is the contract price sufficient to cover the cost of barter and net the desired revenue?
Price administration, they presume to do it for the general welfare to lessen the effects of
destructive competitions.

8
 Price Quotation
Is quoting the price of goods for international sale a contract may include specific elements
affecting the price, such as credit, sales terms and terms and transportation, parties to the
transaction must be certain that the quotation settled on appropriately locates responsibility for the
goods during transportation and spells out who pays transportation charges and from what point.
Price quotation must also specify the currency to be used, credit terms and the type of
documentation required. Finally the price quotation definition might be necessary because different
countries use different units of measurement. Quality specifications can also be misunderstood if
not completely spelled out. Furthermore, there should be complete agreement on quality standards
to be used in evaluating the product.

Administered pricing: Administered pricing is an attempt to establish price for on entire market.
Such prices may be arranged through the cooperation of competitors, through national, state, or
local governments, or by international agreement. The legality of administered pricing
arrangements of various kinds differs from country to country and from time to time. A country
may condone price fixing for foreign markets but condemn it for the domestic market for instance.
In general, the end goal of all administered pricing activities is to reduce the impact of price
competition eliminate it. Price fixing by business is not vines as an acceptable practice, but when
governments enter the field of price administration, they presume to do it for the general welfare to
lessen the effects of destructive competitions.
The pervasiveness of price fixing attempts in business is reflected by the diversity of the
language of administered prices; pricing arrangements are known as agreements, arrangements,
combines, conspiracies, cartels, communities of profit, profit pools, licensing, trade associations,
communities of profit, profit pools, licensing, trade associations, and price agreements. The
arrangement themselves vary from the completely informal, with no spoken or acknowledge
agreement, to highly formalized and structured arrangements. Any type of price fixing
arrangement can be adapted to international business, but of all the forms mentioned, cartels are the
most directly associated with international marketing.
Cartels: A cartel exists when various companies producing similar products or service work
together to control markets for the type of goods and services they produce. The cartel association
may use formal agreements to set prices, establish levels of productions and sales for the
participating companies. In some instances, and ever redistribute, profit . The entire selling
function, sells the goods of all the producers, and distributes the profits.
The economic role of cartels is highly debatable, but their proponents argue that eliminate
cutthroat competition and lower prices to consumers. However, in the view of most experts, it is
doubtful that the consumer. However, in the view of most experts, it is doubtful that the consumers
benefits very often from cartels.
Government Influenced pricing:
Companies doing business in foreign countries encounter a number of different types of
government price setting. To control prices, governments may establish margins, set prices and
floors or ceilings, restrict price changes, compete in the market, grant subsidies and act as a

9
purchasing monopsony or selling monopoly. The or even encouraging, businesses to collude in
setting manipulative prices.
Government of Producing and consuming countries play an ever-increasing role in the
establishment of international prices for certain basic commodities.
Conclusion
Pricing in the international market place requires a combination of intimate knowledge of market
cost and regulations an awareness of possible counter trade deals, infinite patience for detail and a
strewed sense of market strategy.

10