Chapter 6
Pricing Strategies for International Markets
International Pricing Considerations:
1. Economic conditions: including consumer purchasing power, their spending patterns, and
changes in income distribution
2. Exchange rate: a weaker domestic currency means that the price you pay for foreign goods
will generally rise significantly.
3. Shipping: higher shipping costs hit prices of imported goods at the dock within two months.
Those then quickly pass through to producer prices
4. Tariffs: monetary barriers in the form of taxes imposed by the government on imported or
exported goods. They’re used as revenue-generating taxes or to discourage the importation
of goods or for both reasons. Tariff rates are based on value or quantity or a combination
of both.
Geographical Pricing
This refers to price adjustments required because of the location of the customer for delivery
of products (Zone pricing). In this strategy, the manufacturer assumes responsibility for the
cost and management of product delivery
International Pricing Strategies:
1. Cost-Oriented Pricing:
In cost-oriented pricing, marketers first calculate the costs of acquiring or making a product
and their expenses of doing business, then add their projected profit margin to arrive at a price.
Two common methods are:
1. Markup pricing: Resellers add a dollar amount (markup) to their cost to arrive at a
price. It is used primarily by wholesalers and retailers.
2. Cost-plus pricing: All costs and expenses are calculated, and then the desired profit
is added to arrive at a price (usually a percentage)
2. Demand-oriented Pricing:
Marketers who use demand-oriented pricing attempt to determine what consumers are willing
to pay for goods and services. The key to this method of pricing is the consumer’s perceived
value of the item.
1. Customer Value-Based pricing: Companies use buyers’ perceptions of value as the
key to pricing. It involves understanding how much value consumers place on the
benefits they receive from the product and setting a price that captures that value.
→ The demand for cell phone service has increased tremendously in the past years,
and thus its price is likely to increase as well based on the increase in demand.
3. Competition-oriented Pricing:
This strategy involves setting prices based on competitors’ strategies, costs, prices, and market
offerings. Consumers will base their judgments of a product’s value on the prices that
competitors charge for similar products. Marketers may elect to take one of 3 actions after
learning their competitors’ prices:
1. Price above the competition
2. Price below the competition
3. Price in line with the competition (going-rate pricing)
Discrimination Pricing:
Price discrimination is a selling strategy that charges customers different prices for the same
product or service based on what the seller thinks they can get the customer to agree to. In pure
price discrimination, the seller charges each customer the maximum price they will pay. In
more common forms of price discrimination, the seller places customers in groups based on
certain attributes and charges each group a different price.
• First-Degree (Perfect) Price Discrimination: occurs when a business charges the
maximum possible price for each unit consumed. Ex.: airlines charging high prices for
flights with high demand.
• Second-Degree Price Discrimination: occurs when a company charges a different
price for different quantities consumed. Ex.: quantity discounts on bulk purchases.
• Third-Degree Price Discrimination: Most common type, that occurs when a company
charges a different price to different consumer groups. Ex.: Cinemas may divide
moviegoers into seniors, adults, and children, each paying a different price when seeing
the same movie / different price tickets for tourists or residents
Product Life Cycle:
Products move through 4 stages, with pricing playing a key role in each:
1. Introduction: To introduce a new product, two methods may be used:
1. Skimming pricing: Setting a high price for a new product to capitalize on high
demand.
2. Penetration pricing: Setting a low initial price to encourage higher distribution
and exposure. Penetration pricing also requires a marketing strategy that
incorporates mass production, distribution and promotion.
2. Growth: Sales of products introduced with skimming pricing should be monitored.
Once sales begin to level off, the price should be lowered. Very little price change will
be made in the growth state for products introduced with penetration pricing.
3. Maturity: The marketer’s principal goal during the maturity stage is to stretch the life
of a product. Some will reduce their prices or modify the original product as well as
seek new target markets to maximize sales.
4. Decline: The pricing strategy used in the declining phase is majorly low pricing.
Furthermore, to protect revenue, companies try to cut production costs to sustain their
low prices. Another strategy used is to offer discounts and bundling deals. With
bundling, the declining product is included with other in-demand products.
