Subject- International Marketing

Class- MBA (4TH) sem(HR+MRKETING)

Topic- pricing stretegies in international marketing

Submitted to: Submitted by:

Mr. Amit Kumar Priyanka Moolchandani
 International Marketing - Pricing Strategies

With respect to marketing mix, price is the least attractive element to be considered. Marketing companies should
really target on producing as high a margin as possible. The debate is that the merchant should change item,
location or advertisement in some way before resorting to minimization of price. Anyhow, price is a flexible
component element of the mix as we shall see.

Penetration Pricing
The rate issued for goods and services is set artificially low in order to earn market share. After
achieving, the price is increased. This strategy was first used by France Telecom and Sky TV. Enterprises
need to grab the opportunity to hold on to customers, so they offered free telephones or satellite dishes
at minimal rates. And eventually, people signed up for their services.

After getting large number of subscribers, rates gradually go up. For example, Tata Sky or any cable or
satellite company, when there is a premium movie or sporting event rates are at their highest. Thus, they
shift from penetration strategy to more of a skimming or premium pricing strategy.

Economy Pricing
Here, the rates of marketing and advertising a product are kept as low as possible. Supermarkets often
have economy brands for soups, spaghetti, biscuits, etc.
Budget airlines are popular for keeping their overheads as low as possible and then providing the
customer a comparative lower rate to fill an aircraft. The first few seats are sold at a very low rate almost
an advertisement rate price and the middle majority are economy seats, with the highest rate being sold
for the last few seats on a flight i.e. in the premium pricing strategy. During times of recession, economy
pricing records more purchase.

Price Skimming
Price skimming sees an enterprise charge a higher rate because it has a substantial competitive benefit.
However, the benefit tends not to be sustainable and reasonable. The high cost tempts new competitors
into the market, and the rate inevitably decreases due to increased supply.

Producers of smart phones used a skimming strategy. Once other producers penetrated into the market
and the smart phones were manufactured at a lower unit price, other marketing approaches and pricing
approaches were executed. New products were launched and the market for smart phones earned a
reputation for innovation.

Factors Influencing Pricing Strategy in International

Marketing
Some of the most important factors influencing pricing strategy in
international marketing are as follows:
Pricing decisions are complex in international marketing. A firm may have to follow different pricing

strategies in different markets. Whatever might be the strategy followed, pricing has to reflect the proper

value in the eyes of the consumer. Pricing is an important strategic and tactical competitive weapon that

can be used by a firm in international marketing.

It represents that element of the marketing mix, which is controllable by the firm to a large extent. A firm

should integrate pricing strategies with the other elements of the international marketing mix.

Choice of a pricing strategy is dependent on:

1) Corporate goals and objectives

2) Customer characteristics

3) Intensity of inter-firm rivalry

4) Phase of the product life cycle

Having considered the factors influencing the choice of strategy, let
us now turn specifically to different strategies:

1) Skimming Strategies:
One of the most commonly discussed strategies is the skimming strategy. This strategy refers to the

firm’s desire to skim the market, by selling at a premium price. Skimming refers to the objective of

achieving highest possible contribution in a short time. To use this approach, the product has to be

unique and the target market should be willing to pay the high price. Success of this strategy depends

on the ability and speed of competitive reaction. A firm with a small market share can face aggressive

local competition when using skimming. Maintenance of high quality requires lot of resources. If the

product is sold cheaply at home, then the problems of gray market can surface.

This strategy delivers results in the following situations:

i) When the target market associates quality of the product with its price, and high price is perceived to

mean high quality of the product.

ii) When the customer is aware and is willing to buy the product at a higher price just to be an opinion

leader.

iii) When the product is perceived as enhancing the customer’s status in society.

iv) When competition is non-existent or the threat from potential competition exists in the industry

because of low entry and exist barriers.

v) When the product represents significant technological breakthroughs and is perceived as a ‘high

technology’ product.

In adopting the skimming strategy the firm’s objective is to achieve an early break-even point and to

maximize profits in a shorter time span or seek profits from a niche.

2) Penetration Pricing Strategies:
As opposed to the skimming strategy, the objective of penetration price strategy is to gain a foothold in a

highly competitive market. The objective of this strategy is market share or market penetration. Here, the

firm prices its product lower than the others do in competition. Penetration pricing uses deliberate low

prices to stimulate market growth and capture market share. It can be useful when there is a mass

market and price sensitive customers. Japanese companies increasingly resort to penetrative pricing

due to intense local competition.

This strategy delivers results in the following situations:

i) When the size of the market is large and it is a growing market.

ii) When customer loyalty is not high customers have been buying the existing brands more because of

habit rather than any specific preferences for it.

iii) When the market is characterized by intensive competition

iv) When the firm uses it as an entry strategy

v) Where price-quality association is weak.

3) Differential Pricing Strategies:

This strategy involves a firm differentiating its price across different market segments. The assumption in

this strategy is that different market segments do not communicate or have different search costs and

value perceptions of the product. In other words heterogeneity in the market motivates a firm to adopt

this strategy.

4) Geographic Pricing Strategies:

This strategy seeks to exploit economies of scale by pricing the product below the competitor’s in one

market and adopting a penetration strategy in the other. The former is termed as second market

discounting. This second market discounting is a part of the differential pricing strategy where the firm

either dumps or sells below its cost in the market to utilize its existing surplus capacity. So, in geographic

pricing strategy, a firm may charge a premium in one market, penetration price in another market and a

discounted price in the third.

5) Product Line Pricing Strategies:
These are a set of price strategies, which a multi-product firm can usefully adopt. An important fact to be

noted is that these products have to be related, in other words belonging to the same product family.

Faced with multi-products and fluctuating demand, the firm may adopt a combination of the following

strategies to effectively manage its product line or maximize its profits across the product line.

i) Price Bundling:
This strategy is used by a firm to even out the demand for its product. This is useful strategy for

perishable; time-bound products like food, hotel room or a seat on a flight and for products cannot be

substituted, like the package of stereo music system. Off-season discounts and, season tickets for music

festivals are examples of price bundling strategy. This is a passive strategy aimed at correctly bundling

the prices of related items so that the firm is able to maximize its profits.

ii) Premium Pricing:

This strategy is used by a firm that has heterogeneity of demand for substitute products with joint

economies of scale. Consider the example of a colour television set. There are different models

available with different features, like the one with a remote control and another without it. Both are
substitutable and satisfy the customer needs. But the firm may opt to premium price the first model and

position it as the top of the product line for high income or upper income group of customers or for whom

communicating that “they have arrived” is important,

iii) Image Pricing:

This strategy is used when consumers infer quality from the prices of substitute models or competing

products. The firm varies its prices over different brands of the same product line. This strategy is

commonly used in textiles, cosmetics, toilet soaps and perfumes.

iv) Complementary Pricing:

This strategy is used by a firm that has customers with high transaction costs for one or more of its

products. Transaction costs are all those costs that a customer has to incur to buy the product, like the

registration fees that a flat buyer has to pay in order to be a legal owner or the processing fees that the

bank may charge to give a credit card to the customer.

v) Captive Pricing Strategy:

regularly buying one of the products of the firm. A typical example is the Gillette Here a special price

deal is offered to loyal customers or those who are shaving system, which offers two twin blades free
with its razor to induce the buyer to purchase its blades. Kodak adopted this strategy, when it offered a

film roll free to all buyers who bought its camera. As may be observed this is a strategy aimed at building

customer loyalty.

vi) Loss Leader Strategy:

This is another example of complementary pricing strategy. This strategy involves dropping the price on

a well-known brand to generate demand or traffic at the retail outlet.

vii) Two-Part Pricing:

This strategy is used by products that can be divided into two distinct parts. For example, membership of

a video library has two parts – one is the membership fee, which is annual and the other is rent for each

time frame for which a videocassette is rented. As may be observed the price has two components, the

fixed fees and the variables usage fees.

Some important types of transfer pricing methods used in

International Marketing are as follows:
Transfer pricing is the pricing of goods and services exchanged
in intra corporate purchase transactions.

1) Transfer at Cost:
Companies using the transfer-at-cost approach recognize that sales by international affiliates contribute

to corporate profitability by generating scale economies in domestic manufacturing operations. This

approach assumes lower costs lead to better affiliate performance, which ultimately benefits the entire

organisation.

The transfer-at-cost method helps keep duties at a minimum. Companies using this approach have no

profit expectation on transfer sales; rather, the expectation is that the affiliate will generate the profit by

subsequent resale.

2) Cost-Plus Pricing:
Companies that follow the cost-plus pricing method are taking the position that profit must be shown for

any product or service at every stage of movement through the corporate system. While cost-plus
pricing may result in a price that is completely unrelated to competitive or demand conditions in in-

ternational markets, many exporters use this approach successfully.

3)Market-Based Transfer Price:

A market-based transfer price is derived from the price required to be competitive in the international

market. The constraint on this price is cost. However, there is a considerable degree of variation in how

costs are defined. Since costs generally decline with volume, a decision must be made regarding

whether to price on the basis of current or planned volume levels. To use market-based transfer prices

to enter a new market that is too small to support local manufacturing, third-country sourcing may be

required. This enables a company to establish its name or franchise in the market without investing in

bricks and mortar.

4) “Arm’s-Length” Transfer Pricing:

The price that would have been reached by unrelated parties in a similar transaction is referred to as

“arm’s-length” transfer pricing. This approach requires identifying an arm’s-length price, which may be
difficult to do except in the case of commodity-type products. The arm’s-length price can be a useful

target if it is viewed not as a single point but rather as a range of prices. The important thing to

remember is that pricing at arm’s length in differentiated products results not in pre- determinable

specific prices but in prices that fall within a pre- determinable range.

5) Tax Regulations and Transfer Prices:

Since the global corporation conducts business in a world characterized by different corporate tax rates,

there is an incentive to maximize system income in countries with the lowest tax rates and to minimize

income in high-tax countries. Governments, naturally, are well aware of this. In recent years, many

governments have tried to maximize national tax revenues by examining company returns and

mandating reallocation of income and expenses.

…………………………………………………………………………………………………..