Chapter 1: Pricing1.1.Introduction

Pricing for international marketing involves: (1) export pricing and (2) pricing within national markets when some form of non export market entry mode has been used, such as investment or assembly. Exporters themselves are often concerned with pricing within a national market. If direct exporting is being used to enter a foreign market the exporter may have to additionally price for other levels in the distribution channel. For example, the export of a consumer good may represent a wholesale transaction to the exporters captive wholesale organization; this involves pricing within a market. On a more general level, the exporter should always be concerned about pricing practices and strategies relevant to the product as it moves to ultimate consumer or industrial user. Pricing within a national market is domestic pricing. From a technical perspective it makes no difference which national market is the object of interest.

The management of prices and price policies in export marketing is somewhat more complex than in domestic marketing. Due to increasing complexity of markets, price decisions are becoming more critical than ever. All markets are becoming more segmented, which results in firms having to broaden their product lines with different products aimed at different types of customer. Gone are the days when coca-cola could offer a single brand to everyone; today it has Coke, Diet Coke, Caffeine Free coke, Cherry Coke, etc. Successful BB marketing is similarly shifting from commodity selling to speciality products. Of concern to the export marketing manager are the following: Pricing decisions for products that are produced wholly or in part in one country and marketed in another (exports): Pricing decisions that are made on products produced or marketed locally but with some centralized influence, from outside the country in which the products are produced or marketed: The effect of pricing decisions in one market on the companys operations in other countries.The philosophy and practice of establishing an export price is fundamentally no different to establishing a price for the domestic market. The customer must feel that he or she has received full value for their money. At the same time the export marketing manager must seek profits, either short run or long run, depending upon the companys overall objectives and the specific decision situation at hand.

Broadly speaking, pricing decisions include setting the initial price as well as changing the established price of products from time to time. Changing a price as well as changing the established price of products from time to time. Changing a price may involve a discount or allowance or anything that represents a deviation from the so-called base price. Price decisions must be made for different classes of purchasers, that is, prices must be set for sales to the following:

Consumers or industrial users; Wholesalers, distributors, or other importing agencies; Partners in strategic alliances; Licensees (when parts or components are exported); Ones own subsidiaries or joint ventures, whether minority or majority interest or wholly owned subsidiaries.

Pricing for the last type of purchaser involves the use of transfer prices. Other pricing decisions include the following:

Detraining the relationships between prices of individual products in a product line an d between products in the product mix; Whether to offer bundle pricing or price by individual product or component; Deciding, in larger companies, on the type and amount of central control to be exercised to ensure that the price to ultimate consumers and users is maintained at a certain level; Establishing a geographic pricing policy, of example whether or not to quote uniform delivered prices.

The issue of differential pricing is important with regard to most of these decisions, especially the differential between export prices and domestic prices. Decisions must be made on the relationships between the prices of products sold in multiple national markets, that is, whether the price to customers in one foreign markets or in the domestic market.There are five distinct facets to the pricing problem facing the export manager, at least three of which are unique to exporting. These five facets, each of which will be discussed in the following pages, are as follows:

Fundamental pricing strategy; Relation of foreign price policy to domestic policy; Currency issues; Elements in the price quotation; Transfer pricing

As a way to bridge the gap between domestic and export pricing matters, we first discuss the nature of a price and arrive at what we call the anatomy of a price.

1.2 Pricing DecisionsWhat do the following words have in common? Fare, dues, tuition, interest, rent, and fee. The answer is that each of these is a term used to describe what one must pay to acquire benefits from another party. More commonly, most people simply use the word price to indicate what it costs to acquire a product.The pricing decision is a critical one for most marketers, yet the amount of attention given to this key area is often much less than is given to other marketing decisions. One reason for the lack of attention is that many believe price setting is a mechanical process requiring the marketer to utilize financial tools, such as spreadsheets, to build their case for setting price levels. While financial tools are widely used to assist in setting price, marketers must consider many other factors when arriving at the price for which their product will sell.

1.3 What is Price?In general terms price is a component of an exchange or transaction that takes place between two parties and refers to what must be given up by one party (i.e., buyer) in order to obtain something offered by another party (i.e., seller). Yet this view of price provides a somewhat limited explanation of what price means to participants in the transaction. In fact, price means different things to different participants in an exchange: Buyers View For those making a purchase, such as final customers, price refers to what must be given up to obtain benefits. In most cases what is given up is financial consideration (e.g., money) in exchange for acquiring access to a good or service. But financial consideration is not always what the buyer gives up. Sometimes in a barter situation a buyer may acquire a product by giving up their own product. For instance, two farmers may exchange cattle for crops. Also, as we will discuss below, buyers may also give up other things to acquire the benefits of a product that are not direct financial payments (e.g., time to learn to use the product). Sellers View - To sellers in a transaction, price reflects the revenue generated for each product sold and, thus, is an important factor in determining profit. For marketing organizations price also serves as a marketing tool and is a key element in marketing promotions. For example, most retailers highlight product pricing in their advertising campaigns.Price is commonly confused with the notion of cost as in "I paid a high cost for buying my new plasma television." Technically, though, these are different concepts. Price is what a buyer pays to acquire products from a seller. Cost concerns the sellers investment (e.g., manufacturing expense) in the product being exchanged with a buyer. For marketing organizations seeking to make a profit the hope is that price will exceed cost so the organization can see financial gain from the transaction.Finally, while product pricing is a main topic for discussion when a company is examining its overall profitability, pricing decisions are not limited to for-profit companies. Not-for-profit organizations, such as charities, educational institutions and industry trade groups, also set prices, though it is often not as apparent . For instance, charities seeking to raise money may set different target levels for donations that reward donors with increases in status (e.g., name in newsletter), gifts or other benefits. While a charitable organization may not call it a price in their promotional material, in reality these donations are equivalent to price setting since donors are required to give a contribution in order to obtain something of value.

1.4 Price vs. ValueFor most customers price by itself is not the key factor when a purchase is being considered. This is because most customers compare the entire marketing offering and do not simply make their purchase decision based solely on a products price. In essence when a purchase situation arises price is one of several variables customers evaluate when they mentally assess a products overall value.As we discussed back in theWhat is Marketing?tutorial, value refers to the perception of benefits received for what someone must give up. Since price often reflects an important part of what someone gives up, a customers perceived value of a product will be affected by a marketers pricing decision. Any easy way to see this is to view value as a calculation:Value =perceived benefits receivedperceived price paidFor the buyer value of a product will change as perceived price paid and/or perceived benefits received change. But the price paid in a transaction is not only financial it can also involve other things that a buyer may be giving up. For example, in addition to paying money a customer may have to spend time learning to use a product, pay to have an old product removed, close down current operations while a product is installed or incur other expenses. However, for the purpose of this tutorial we will limit our discussion to how the marketer sets the financial price of a transaction.

1.5 Importance of PriceWhen marketers talk about what they do as part of their responsibilities for marketing products, the tasks associated with setting price are often not at the top of the list. Marketers are much more likely to discuss their activities related to promotion, product development, market research and other tasks that are viewed as the more interesting and exciting parts of the job.Yet pricing decisions can have important consequences for the marketing organization and the attention given by the marketer to pricing is just as important as the attention given to more recognizable marketing activities. Some reasons pricing is important include: Most Flexible Marketing Mix Variable For marketers price is the most adjustable of all marketing decisions. Unlike product and distribution decisions, which can take months or years to change, or some forms of promotion which can be time consuming to alter (e.g., television advertisement), price can be changed very rapidly. The flexibility of pricing decisions is particularly important in times when the marketer seeks to quickly stimulate demand or respond to competitor price actions. For instance, a marketer can agree to a field salespersons request to lower price for a potential prospect during a phone conversation. Likewise a marketer in charge of online operations can raise prices on hot selling products with the click of a few website buttons. Setting the Right Price Pricing decisions made hastily without sufficient research, analysis, and strategic evaluation can lead to the marketing organization losing revenue. Prices set too low may mean the company is missing out on additional profits that could be earned if the target market is willing to spend more to acquire the product. Additionally, attempts to raise an initially low priced product to a higher price may be met by customer resistance as they may feel the marketer is attempting to take advantage of their customers. Prices set too high can also impact revenue as it prevents interested customers from purchasing the product. Setting the right price level often takes considerable market knowledge and, especially with new products, testing of different pricing options. Trigger of First Impressions - Often times customers perception of a product is formed as soon as they learn the price, such as when a product is first seen when walking down the aisle of a store. While the final decision to make a purchase may be based on the value offered by the entire marketing offering (i.e., entire product), it is possible the customer will not evaluate a marketers product at all based on price alone. It is important for marketers to know if customers are more likely to dismiss a product when all they know is its price. If so, pricing may become the most important of all marketing decisions if it can be shown that customers are avoiding learning more about the product because of the price. Important Part of Sales Promotion Many times price adjustments are part of sales promotions that lower price for a short term to stimulate interest in the product. However, as we noted in our discussion of promotional pricing in theSales Promotiontutorial, marketers must guard against the temptation to adjust prices too frequently since continually increasing and decreasing price can lead customers to be conditioned to anticipate price reductions and, consequently, withhold purchase until the price reduction occurs again.

Chapter 2: Pricing Decisions2.1.Factors Affecting Pricing DecisionFor the remainder of this tutorial we look at factors that affect how marketers set price. The final price for a product may be influenced by many factors which can be categorized into two main groups: Internal Factors - When setting price, marketers must take into consideration several factors which are the result of company decisions and actions. To a large extent these factors are controllable by the company and, if necessary, can be altered. However, while the organization may have control over these factors making a quick change is not always realistic. For instance, product pricing may depend heavily on the productivity of a manufacturing facility (e.g., how much can be produced within a certain period of time). The marketer knows that increasing productivity can reduce the cost of producing each product and thus allow the marketer to potentially lower the products price. But increasing productivity may require major changes at the manufacturing facility that will take time (not to mention be costly) and will not translate into lower price products for a considerable period of time. External Factors - There are a number of influencing factors which are not controlled by the company but will impact pricing decisions. Understanding these factors requires the marketer conduct research to monitor what is happening in each market the company serves since the effect of these factors can vary by market.

2.2 Internal Factors Marketing Objectives Marketing Strategy Cost

Marketing StrategyMarketing strategy concerns the decisions marketers make to help the company satisfy its target market and attain its business and marketing objectives. Price, of course, is one of the key marketing mix decisions and since all marketing mix decisions must work together, the final price will be impacted by how other marketing decisions are made. For instance, marketers selling high quality products would be expected to price their products in a range that will add to the perception of the product being at a high-level.It should be noted that not all companies view price as a key selling feature. Some firms, for example those seeking to be viewed as market leaders in product quality, will deemphasize price and concentrate on a strategy that highlights non-price benefits (e.g., quality, durability, service, etc.). Such non-price competition can help the company avoid potential price wars that often break out between competitive firms that follow a market share objective and use price as a key selling feature.

Marketing ObjectivesMarketing decisions are guided by the overall objectives of the company. While we will discuss this in more detail when we cover marketing strategy in a later tutorial, for now it is important to understand that all marketing decisions, including price, work to help achieve company objectives.Corporate objectives can be wide-ranging and include different objectives for different functional areas (e.g., objectives for production, human resources, etc). While pricing decisions are influenced by many types of objectives set up for the marketing functional area, there are four key objectives in which price plays a central role. In most situations only one of these objectives will be followed, though the marketer may have different objectives for different products. The four main marketing objectives affecting price include: Return on Investment (ROI) A firm may set as a marketing objective the requirement that all products attain a certain percentage return on the organizations spending on marketing the product. This level of return along with an estimate of sales will help determine appropriate pricing levels needed to meet the ROI objective. Cash Flow Firms may seek to set prices at a level that will insure that sales revenue will at least cover product production and marketing costs. This is most likely to occur with new products where the organizational objectives allow a new product to simply meet its expenses while efforts are made to establish the product in the market. This objective allows the marketer to worry less about product profitability and instead directs energies to building a market for the product. Market Share The pricing decision may be important when the firm has an objective of gaining a hold in a new market or retaining a certain percent of an existing market. For new products under this objective the price is set artificially low in order to capture a sizeable portion of the market and will be increased as the product becomes more accepted by the target market (we will discuss this marketing strategy in further detail in our next tutorial). For existing products, firms may use price decisions to insure they retain market share in instances where there is a high level of market competition and competitors who are willing to compete on price. Maximize Profits Older products that appeal to a market that is no longer growing may have a company objective requiring the price be set at a level that optimizes profits. This is often the case when the marketer has little incentive to introduce improvements to the product (e.g., demand for product is declining) and will continue to sell the same product at a price premium for as long as some in the market is willing to buy.

CostsFor many for-profit companies, the starting point for setting a products price is to first determine how much it will cost to get the product to their customers. Obviously, whatever price customers pay must exceed the cost of producing a good or delivering a service otherwise the company will lose money.When analyzing cost, the marketer will consider all costs needed to get the product to market including those associated with production, marketing, distribution and company administration (e.g., office expense). These costs can be divided into two main categories: Fixed Costs - Also referred to as overhead costs, these represent costs the marketing organization incurs that are not affected by level of production or sales. For example, for a manufacturer of writing instruments that has just built a new production facility, whether they produce one pen or one million they will still need to pay the monthly mortgage for the building. From the marketing side, fixed costs may also exist in the form of expenditure for fielding a sales force, carrying out an advertising campaign and paying a service to host the companys website. These costs are fixed because there is a level of commitment to spending that is largely not affected by production or sales levels. Variable Costs These costs are directly associated with the production and sales of products and, consequently, may change as the level of production or sales changes. Typically variable costs are evaluated on a per-unit basis since the cost is directly associated with individual items. Most variable costs involve costs of items that are either components of the product (e.g., parts, packaging) or are directly associated with creating the product (e.g., electricity to run an assembly line). However, there are also marketing variable costs such as coupons, which are likely to cost the company more as sales increase (i.e., customers using the coupon). Variable costs, especially for tangible products, tend to decline as more units are produced. This is due to the producing companys ability to purchase product components for lower prices since component suppliers often provide discounted pricing for large quantity purchases.Determining individual unit cost can be a complicated process. While variable costs are often determined on a per-unit basis, applying fixed costs to individual products is less straightforward. For example, if a company manufactures five different products in one manufacturing plant how would it distribute the plants fixed costs (e.g., mortgage, production workers cost) over the five products? In general, a company will assign fixed cost to individual products if the company can clearly associate the cost with the product, such as assigning the cost of operating production machines based on how much time it takes to produce each item. Alternatively, if it is too difficult to associate to specific products the company may simply divide the total fixed cost by production of each item and assign it on percentage basis.

2.3 External Factors: Elasticity of Demand Customer Expectations Competitive and Other Products Government RegulationGovernment RegulationMarketers must be aware of regulations that impact how price is set in the markets in which their products are sold. These regulations are primarily government enacted meaning that there may be legal ramifications if the rules are not followed. Price regulations can come from any level of government and vary widely in their requirements. For instance, in some industries, government regulation may set price ceilings (how high price may be set) while in other industries there may be price floors (how low price may be set). Additional areas of potential regulation include: deceptive pricing, price discrimination, predatory pricing and price fixing.Finally, when selling beyond their home market, marketers must recognize that local regulations may make pricing decisions different for each market. This is particularly a concern when selling to international markets where failure to consider regulations can lead to severe penalties. Consequently marketers must have a clear understanding of regulations in each market they serve.

Elasticity of DemandMarketers should never rest on their marketing decisions. They must continually use market research and their own judgment to determine whether marketing decisions need to be adjusted. When it comes to adjusting price, the marketer must understand what effect a change in price is likely to have on target market demand for a product.Understanding how price changes impact the market requires the marketer have a firm understanding of the concept economists call elasticity of demand, which relates to how purchase quantity changes as prices change. Elasticity is evaluated under the assumption that no other changes are being made (i.e., all things being equal) and only price is adjusted. The logic is to see how price by itself will affect overall demand. Obviously, the chance of nothing else changing in the market but the price of one product is often unrealistic. For example, competitors may react to the marketers price change by changing the price on their product. Despite this, elasticity analysis does serve as a useful tool for estimating market reaction.Elasticity deals with three types of demand scenarios: Elastic Demand Products are considered to exist in a market that exhibits elastic demand when a certain percentage change in price results in a larger and opposite percentage change in demand. For example, if the price of a product increases (decreases) by 10%, the demand for the product is likely to decline (rise) by greater than 10%. Inelastic Demand Products are considered to exist in an inelastic market when a certain percentage change in price results in a smaller and opposite percentage change in demand. For example, if the price of a product increases (decreases) by 10%, the demand for the product is likely to decline (rise) by less than 10%. Unitary Demand This demand occurs when a percentage change in price results in an equal and opposite percentage change in demand. For example, if the price of a product increases (decreases) by 10%, the demand for the product is likely to decline (rise) by 10%.For marketers the important issue with elasticity of demand is to understand how it impacts company revenue. In general the following scenarios apply to making price changes for a given type of market demand: For elastic markets increasing price lowers total revenue while decreasing price increases total revenue. For inelastic markets increasing price raises total revenue while decreasing price lowers total revenue. For unitary markets there is no change in revenue when price is changed.Customer ExpectationsPossibly the most obvious external factors that influence price setting are the expectations of customers and channel partners. As we discussed, when it comes to making a purchase decision customers assess the overall value of a product much more than they assess the price. When deciding on a price marketers need to conduct customer research to determine what price points are acceptable. Pricing beyond these price points could discourage customers from purchasing.Firms within the marketers channels of distribution also must be considered when determining price. Distribution partners expect to receive financial compensation for their efforts, which usually means they will receive a percentage of the final selling price. This percentage or margin between what they pay the marketer to acquire the product and the price they charge their customers must be sufficient for the distributor to cover their costs and also earn a desired profit.

Competitive and Other ProductsMarketers will undoubtedly look to market competitors for indications of how price should be set. For many marketers of consumer products researching competitive pricing is relatively easy, particularly when Internet search tools are used. Price analysis can be somewhat more complicated for products sold to the business market since final price may be affected by a number of factors including if competitors allow customers to negotiate their final price.Analysis of competition will include pricing by direct competitors, related products and primary products. Direct Competitor Pricing Almost all marketing decisions, including pricing, will include an evaluation of competitors offerings. The impact of this information on the actual setting of price will depend on the competitive nature of the market. For instance, products that dominate markets and are viewed as market leaders may not be heavily influenced by competitor pricing since they are in a commanding position to set prices as they see fit. On the other hand in markets where a clear leader does not exist, the pricing of competitive products will be carefully considered. Marketers must not only research competitive prices but must also pay close attention to how these companies will respond to the marketers pricing decisions. For instance, in highly competitive industries, such as gasoline or airline travel, competitors may respond quickly to competitors price adjustments thus reducing the effect of such changes. Related Product Pricing - Products that offer new ways for solving customer needs may look to pricing of products that customers are currently using even though these other products may not appear to be direct competitors. For example, a marketer of a new online golf instruction service that allows customers to access golf instruction via their computer may look at prices charged by local golf professionals for in-person instruction to gauge where to set their price. While on the surface online golf instruction may not be a direct competitor to a golf instructor, marketers for the online service can use the cost of in-person instruction as a reference point for setting price. Primary Product Pricing - As we discussed in theProduct Decisionstutorial, marketers may sell products viewed as complementary to a primary product. For example, Bluetooth headsets are considered complementary to the primary product cellphones. The pricing of complementary products may be affected by pricing changes made to the primary product since customers may compare the price for complementary products based on the primary product price. For example, companies that sell accessory products for the Apple iPod may do so at a cost that is only 10% of the purchase price of the iPod. However, if Apple were to dramatically drop the price, for instance by 50%, the accessory at its present price would now be 20% of the of iPod price. This may be perceived by the market as a doubling of the accessorys price. To maintain its perceived value the accessory marketer may need to respond to the iPod price drop by also lowering the price of the accessory.

Chapter 3: International Marketing Pricing decisions3.1 Determinants Of An Export Price No other marketing tool has such a powerful an immediate effect on a firms sales and profitability record as pricing. The consequences of price changes are more direct and immediate than those of any other of the elements of the marketing mix, as they result in subsequent customer and, in most cases, competitor reactions. Given their power, pricing issues have attracted surprisingly little research interest compared with other marketing tolls (Stottinger, 2001). What applies to a single market-setting holds even more true for the global marketplace, because additional context factors increase complexity.

In order to understand the structure of a price we need first to examine those basic factors that influence the setting of an export price. These factors include the following:

Costs; Market conditions and customer behaviour (demand or value); Competition; Legal and political issues; General company policies, including policies on financial matters, production, organization structure; and on marketing activities such as the planning and development of products, the product mix, marketing channels, sales promotion, advertising, and selling.

3.2 Costs

Costs are often a major factor in price determination and there are a number of reasons to have detailed information on costs. Costs are useful in setting a price floor. In the short run, when a company has excess capacity, the price floor may be out-of-pocket costs, that is, such direct costs as labour, raw materials, and shipping. However, in the long run full costs for each individual product. The actual cost although not necessarily full costs for each individual product. The actual cost floor, therefore, may often be somewhere between direct cost and full cost.

Some years ago a large chemical company sometimes sold products abroad on an incremental cost basis whenever excess domestic capacity existed. The companys price floor was direct cost, since every unit sold at a price in excess of companys price floor was direct cost, would contribute to net profit. This company illustrates a technique known as marginal pricing, based on the accounting concept of contribution margin. Direct costs are those that are incurred by the decision that is made. When used in export pricing, this technique suggests that only those costs that are necessary to produce export revenues are relevant and should be matched against export revenues when assessing profitability. In addition to excess capacity, marginal or incremental pricing may be used for the purposes of entering an export market on competitive level, or retaining an esisting competitive position. Other reasons for pricing exports at less than full costs include: to assist dealer organization growth; to keep a group of employees working together; to sell a special product outside the usual export line; to supply a manufacturing prototype to a subsidiary or licensee; orders for large volumes; the product sold in the domestic market at less than full cost; the export customer provides his or her own installation and services; and significant incremental sales may result.

Costs are also helpful in estimating how rivals will react of setting specific price, assumi8ng that knowledge of ones own costs helps to assess the reactions of ones competitors. Costs may help in estimating a price that will keep out or discourage new competitors from entering an industry. Internationally, however, costs are often somewhat less helpful for this purpose than in the domestic market, since they may vary over a wider range from country to country.

The developments of e-commerce, e-trade, etc. seem to lower the price differentials between countries. Economic theory might suggest the Internet would reduce price competition. Prices becoming more transparent, consumers and competitors having fuller information at a very low cost are all factors conducive to industry cooperation.

However, what makes price competition rather more than less likely is the lowering of barriers to entry. New entrants do not need to invest in expensive stores or international channels of distribution. This could increase the number of firms and the differences among them, making high prices more difficult to sustain. New entrants with no brand name will find it necessary to compete on price to get a toehold in the market. Further, the reduction in search costs and the ease with which consumers can compare prices on the Internet will encourage consumers to switch to lower price suppliers. Search and switching costs may be so low that negotiated prices become the norm. It may be much easier for customers to play suppliers off against each other, obtaining price quotes through e-mail and making offers and counteroffers among a large number of sellers.

The Internet challenges price quotations and strategies for most exporting companies due to what economists call price and cost transparency, a situation made possible by the abundance of free, easily obtained information on the Internet. All that information has a way of making a sellers prices and costs more transparent to buyers in other words, it lets them see through those costs and determine whether they are in line with the prices being charged.

In the new reality of price and cost transparency the seller or manufacturer can take several steps to mitigate the effects brought about by the Internets trove of information; however, companies wont be able to avoid it. First, companies can pursue price options that go beyond just cutting their prices. One strategy involves price lining. This is a well-known practice of offering different products or services at various price points to meet different customers need. For example, the US telephone operator ANC offers many plans at different prices and rates for its customers worldwide according to the level of subscriber usage.

Second, companies may implement dynamic pricing, in which the prices they charge vary from one market to another, depending on the market conditions, differences in costs, and variations in the way consumers value the offering. By forcing the customers to enter their Zip codes before they can view prices, companies can earn higher profits than those that have only one price for every market they serve. However, the companies should tread carefully when thinking about dynamic pricing. Because the Internet allows customers to share information with one another easily, dynamic pricing is likely to create widespread perceptions of unfairness that may prove devastating to business in the long run. Consumers will be unhappy if they believe they have paid more for a product than someone who was more persistent, more adept at bargaining, or just plain lucky.

As a third and better solution, companies should look towards innovating and improving the benefits that their products or services offer. Bundling packaging a product with other goods and services can make it difficult for buyers to see through the costs of any single item within the bundle. It focuses buyers on the benefits of the overall package rather than the cost of each piece. Also consumers will reward makers of new and distinctive products that improve their lives.

The basic categories of cost incurred to serve domestic and export customers are the same, for example labour, raw materials, component parts, selling, shipping, overheads. But their relative importance as a determinant of price may differ greatly. For example, the cost of marketing a product in a thin market thousands of miles from the production plant may be relatively high. Such items as the cost of sales people, ocean freight, marine insurance, modified packaging, specially adapted advertising, and so forth may raise the price floor. Also, the location of foreign customers affects either the time needed to ship products or the need for maintaining local inventories. Special legal requirements may influence production costs; for example automobile safety requirements or legislation affecting food and drugs. To illustrate, in 2000 a right-hand drive model of a Jeep Cherokee vehicle produced in the United States and destined for Japan needed to have adjustments made to adapt it to Japanese regulations. Chrysler, the manufacturer, needed to show compliance with 238 regulations. It is no wonder that costs can easily mount up.

Any consideration of costs requires knowledge about volume. The allocation of nonescapable costs on a per unit basis varies in accordance with the number of units sold. Thus if volume is increased in a situation where nonescapable costs are a substantial proportion of total costs, the cost floor will drop relatively rapidly. On the other hand, if direct costs are high, say 80% or 85% of total costs a realistic figure for a broad range of products a substantial increase in volume is necessary before the amount of nonescapable cost allocated to each unit will b e reduced appreciably. Thus, since for most products a high percentage of costs are direct, the cost floor is often influenced primarily by direct costs.

3.3 Market Conditions (Demand)

The nature of the market determines the upper limit for prices. The utility, or value, placed on the product by purchasers sets the price ceiling. When a manager attempts to establish the value of a product in an export market, the manager in essence is attempting to establish a demand schedule for the product. Values should be measured in terms of product utility, translated into monetary terms. Thus pricing can be viewed as a continuous process of adjusting the price to the export product to the fluctuating utility of the last prospective buyer so as to make him a customer. In June 1988 Isuzu Motors Limited of Japan increased its base price in the United States for its sports utility vehicles and pickup trucks. Although the company claimed that the price increase was due to the currency exchange situation caused by continuing pressure of the Japanese yen on the US dollar, the facts were that the dollar, the facts were that the dollar/yen exchange rate was the same as it had been six months earlier and the trend seemed to be for the dollar putting pressure on the yen. What did justify higher prices was a higher demand. Purchases of Isuzu vehicles were more than 6% above those a year earlier, while purchases of Japanese produced competing products all declined. Since US consumers seemed to prefer Isuzu over competitors products, it can be argued that the company made a good decision in raising the price to take advantage of that preference. In effect this amounted to assessing customers; Price sensitivity or price elasticity.

When estimating a demand schedule he market can be stratified, which involves estimating the number of customers who will buy at several levels of price. The exporter can then select the strata of interest, which gives the last prospect an amount of utility equal to the price charged while all other buyers will have surplus utility in that they would be willing to pay a higher price. Value may be determined by asking people, by some type of barter experiment, by test market pricing, by comparison to substitute products, or by statistical analysis of historical price/volume relationship.

The basic factors that determine how the market will evaluate a product in foreign markets include demographic factors, customers and traditions, and economic considerations, all of which are related to customer acceptance and use of a income elasticity, and so forth, often varies widely from country to country. Diverse religions, differences in the cost of borrowing, varying attitudes on family formation and living habits, to mention just a few factors, create wide differences in the willingness and ability of customers to pay a given price.

Often a critical determinant to estimating demand is the availability of information. The obtaining of such information can be extremely difficult and costly in many countries, added to the cost of conducting marketing research in distant markets, and may make it relatively difficult to determine how the market will respond to different levels of export pricing.

3.4 Competition

While costs and demand conditions circumscribe the price floor and ceiling, competitive conditions help to determine where within the two extremes the actual price should be set. Reaction of competitors is often the crucial consideration imposing practical Limitations on export pricing alternatives. Prices of competitive products (substitute products) have an impact on the sales volume attainable by an exporter. The decision is whether to price above, at the same level as, or below competition.

In addition to present competitors, potential competitors must be considered. Of relevance is the extent and importance of the barriers to entry and competition how easy and cheap it is to get into the business and compete effectively. Barriers that an exporter can use to provide shelter from competition include having a product distinctiveness, a brand prominence with high brand equity, and a well established channel of distribution both between countries and within a country that can provide greater dealer strength. Obviously, the more significant the barriers, the more pricing freedom there is.

Under conditions approximating pure competition, price is set in the marketplace. Price tends to be just enough above costs to keep marginal producers in business. Thus, from the point of view of the price setter, the most important factor is costs. If a producers cost floor is below the prevailing market price, the product will be produced and sold. Since the exporter in such a market has little discretion over price, the pricing problem is essentially whether or not to sell at the market price.

Under conditions of monopolistic or imperfect competition the seller has some discretion to vary the product quality, promotional efforts, and channel policies in order to adapt the price of the total product to serve reselected market segments. For most branded products and even for some commodities (when the export marketer and its reputation for service, dependability, and delivery are known) exporters have some range of discretion over price. Nevertheless, they are still limited by what their competitors charge; any price differentials utility, that is, perceived value. The closer the substitutability of products, the more nearly identical the prices must be, and the greater the influence of costs in determining prices (assuming a large enough number of buyers and sellers so that conditions of oligopoly do not exist).

There are times when an exporter in such a competitive structure ignores competitive prices. To illustrate, a few years ago one manufacturer of capital equipment for mining and earth-moving operations sold primarily on a cost plus fairprofit basis. The company sold in foreign markets at domestic factory list prices plus costs of exporting. The company paid littlie attention to the utility of the equipment and to competitors prices, mainly because foreign products were not good substitutes. However, many branded industrial products must also be priced competitively (for example electronic data processing equipment, machine tools, and road-building equipment) since purchasers are often keenly aware of the comparative cost/value relationship among feasible product alternatives.

Under conditions of oligopoly, without sufficient product differentiation to give a seller a monopoly position, the point between the cost floor and price ceiling at which products will be priced depends upon the assessment of each oligopolist of the others reactions to his decisions. If there is price leadership, conscious parallel action, or collusion, the price will probably be somewhat above the cost floor, and competition is likely to be based to a great extent on product variations, quality, services, and promotional activities.

A good illustration of the effect of competition on prices is the reaction of Eastman Kodak to competition by Japans Fuji in the US film market. In 1994 Fuji was priced such that Kodaks main product, Kodak Gold, was priced at 17% above Fuji. Since Fuji could easily, and would, match any price cut, Kodak chose to introduce a new low-priced product, Fun time film, in larger package sizes and limited quantities. On a per-roll basis Kodak was priced lower than Fuji continued using price as a competitive tool, but in 1997 it cut prices in the United States by as much as 50% on multiple-roll packs of colour film (Business Week, 1997, p.30). Kodak lost market share. Kodaks problems were aggravated by the loss of exclusive rights to parts of Wal-marts photo-developing business and problems with its film-developing agreements with Walgreen Co; the USs largest drugstore chain (Bandler, 2004) Kodak film sales through these outlets has been hurt by its diminished visibility. In 2004 Kodak announced that it would cease selling traditional film-using cameras in its move into digital cameras, and the effect that this may have on its film sales is unknown. Sales of all brands of film have been declining for several years, but it is still a major market that Kodak cannot afford to lose.

3.5 Legal/Political Influence

The manager charged with determining prices must consider the legal and political situations as they exist and as they exist and as they differ from country to country. Legal and political factors act primarily to restrict the freedom of a company to set prices strictly on the basis of economic considerations.

Today it is widely recognized that sovereign nations have the right and obligation to take action that protects and fosters the prosperity and wellbeing of their citizens. Although there is often disagreement as to whether specific types of governmental actions are proper (whether or not they advance the long-run interests of their citizens), managers with pricing responsibility nevertheless must usually accept ht situation as it exists, taking account of antidumping legislation, tariffs, import restrictions, and so forth.

Officials of some countries will not issue import licenses if they feel that the price is too high or too low. One company in Brazil needed a product that Brazilian manufacturers were unable to supply due to lack of capacity. Brazilian authorities, presumably to foster local production, would not permit importation of the product from Japan or the Untied States because it was available from these countries at a lower price than ordinarily charged by Brazilian manufacturers.

Sometimes foreign officials use pricing guidelines as a criterion for granting foreign exchange to the buyer of foreign merchandise. In some countries the government is concerned with the relationship between the amount paid and the social benefits of the purchase. Even though the customer may be willing to pay a high price, the government may refuse to grant adequate foreign exchange for what it considers to be nonessential imports.

Most industrialized countries have antidumping legislation. Dumping is the practice of selling in foreign markets at prices below those in the domestic market. Antidumping legislation is ordinarily enacted in nations that wish to protect certain industries from temporary or abnormal price fluctuations that would disrupt local production. Thus, antidumping legislation sets a price floor. It should be noted that antidumping legislation is particularly relevant for firms from less developed countries wherein a Catch-22 situation often arses. Competitive advantage for firms from less developed countries centres on their low-cost base; firms run the risk of being reported in export markets for unfair pricing and dumping. While promoting export is essential to less developed countries improving their economic performance, in some cases they may be prevented from utilizing their competitive advantages in the most effective way. The fact that sales are made at lower prices for export does not mean that antidumping action will be initiated in a foreign market. Under the laws of most countries, no dumping occurs if the exporters price is above that of the countrys current market price, even if the exporters price to that country is lower than its selling price in its domestic market. Exhibit 10.2 gives some recent examples of antidumping actions.

Another area of potential concern is how to handle rebates, discounts, allowances, and even price escalation or guarantee against price decline clauses in contracts. An importer may ask for, and the exporter may give, one of these price concessions. By themselves such concessions are not illegal, but they may become so in the exporters and/or the importers country if they are not disclosed to the appropriate governmental agency (Johnson.1994, p. 82).

Since tariff levels vary from country ot country there is an incentive for exporters to vary the price somewhat from country to country. The incentive changes, depending on the nature of demand in each market and how much customers are willing to pay (that is, the price elasticity of demand). Thus, in some countries with high Customs duties and high price elasticity, the base price may have to be lower than in other countries if the product is to achieve satisfactory volume in these markets. Consequently the profitability of the product will be set at a high level, with little loss of volume, unless competitors are selling at lower prices.

Import tariffs can influence decisions on sourcing, thereby influencing costs and prices. If import duties in a country are high on finished products, relative to duties on material or component parts, from a total cost standpoint it may be desirable to import material or components for local manufacturing or assembly.

When the government intervenes in currency markets the competitive situation may change. If a government devalues its currency exporters to that market might have to lower prices in order to compete with domestic producer. At the same time the countrys exporters would find themselves able to do better in export markets as their prices become lower. An exporter in such a situation might find itself able to improve its competitive position in selected foreign markets.

3.6 Company Policies And Marketing Mix

Export pricing is influenced by past and current corporate philosophy, organization, and managerial policies. Ideally, all long-run and short-run decisions should be recognized as interrelated and interdependent, but as a practical matter some decisions must be made first and must serve as a basis for making subsequent decisions. For example, thee company organizational structure must be established and maintained for a period of time. During this period other activities must be conducted within the constraints of the structure.

Pricing cannot be divorced from product considerations. Management must take the customers point of view and evaluate a product in terms of its quality and other characteristics relative to its price. Decisions on the nature of the product, package, quality, varieties or styles available and so forth influence not only the cost, but what customers are willing to pay, as well as the degree to which competitors products are considered acceptable substitutes. For example, there are numerous manufacturers of such products as industrial machines, tools, and equipment, which are able to export at higher prices than foreign competitors because of a design advantage.

So-called national stereotypes and buyer attitudes toward particular countries of origin (as discussed in Chapter 9) can affect the way in which export prices are interpreted in foreign markets. Customer reactions to price and the judgements that customers make will be conditioned by their perceptions and attitudes toward the country of origin of imported goods. For example, if the image of the exporting country held by buyers is favourable and the price of a product from there is low, it will be viewed as good value for the money. If the price was high, a product from there would be perceived as high quality. With an unfavourable country image the perceptions would be low quality and poor value for the money, respectively. Such perceptions are thought to be truer the less the market knows about the products themselves and the suppliers. In short, this situation is most likely to face the new exporter as well as he smaller company with a limited market reputation.

The channel of distribution utilized also affects price. Certain channels such as export merchants may require a higher operating margin than a manufacturers export agent, depending, of course, on the nature of the product, the markets served, and the cost of performing the required functions. Thus, if dual channels are used and if he price to marketing intermediaries is uniform, the price to ultimate users will probably vary. However, if the prices to intermediaries are varied in approximate proportion to their different costs of operations (or operating gross margin), it would be possible to achieve some degree of uniformity in prices to ultimate consumers or users. But such a price structure would be complex and difficult to implement and maintain.

Utility of product depends not only on its physical characteristics but also on how it is sold and serviced. For example, a manufacturer of a diversified line of electrical control products and other electrical equipment once found that a price disadvantage (vis-a-vis foreign competitors) can often be overcome by the following:

Careful appointment and training of technical representatives; Continued analysis and comparison of product features with competitors products and exploitation of design advantages by demonstrating to customers superior performance characteristics, ease and low cost of maintenance long life, and ease of installation; Prompt delivery, which is in some cases facilitated by maintaining inventories abroad.

Thus such factors as the type of channels selected, the relations with foreign representatives or dealers, the distinctiveness of the product, and the services provided determine the price that customers are willing to pay.

Promotional policies are also interrelated with pricing. Communication activities (for example, advertising, personal selling, and sales promotion) should be designed to provide customers with appropriate information and persuasive appeals. The cost of preparing and conducting international promotional activities helps to set the price floor; such costs also contribute to the utility of the product and thereby influence the price ceiling.

Chapter 4: Export Pricing Strategy

4.1 FUNDAMENTAL

All too frequently export marketing managers rely entirely on costs as a basis for establishing foreign market price policy. In some instances they attempt to cover full costs at all times even though such a policy may result in substantially less than optimum sales volume or may encourage competitors to enter and steal the market. In other instances a rough approximation of marginal (direct) cost pricing is utilized. In this situation the price is based primarily on the variable, or direct, costs of production with only a minimum part of fixed costs added. Such a technique assumes that profits will be made on domestic sales and that they will be larger than otherwise because of the frequent international complaint of dumping, which may result in foreign governments imposing arbitrary restrictions on the import of the commodity. In addition, there is a chance that the strategy may be viewed as predatory pricing, which might be a violation of the foreign countrys antitrust law.

The relationship between cost and volume is critical to an approach to pricing known as experience-curve pricing (Dolan and Simon, 1997). Based on the Boston Consulting Groups work, unit costs are expected to decline as accumulated volume (that is, total units produced of a product) increases. The decline in costs is attributed to changes in production efficiency. Initially, prices are set below unit cost so as to gain a price advantage over competitors. Efficiency increases through market share increase, leading to a reduction in cost, and these lower costs then exceed price reductions.

Strategies of basing prices on costs, whether full cost or marginal cost, oversimplify the pricing process in export marketing. There are a number of different pricing is not the simple problem of establishing a selling price somewhere between cost and the maximum that the traffic (market, customers, or consumers) will bear. It is not one of mathematical precision, but one of statistical probabilities. The problem of the pricing executive is much like that of the player in a card game. His or her play is determined by the moves and countermoves of opponents. This anticipating and reacting to opponents or competitors is known as strategy and is as important in pricing as in card games.

It is the gap between cost and value that makes it possible to have a pricing strategy. Which strategy is appropriate for a company depends upon the objective underlying strategy choice. That is, just what is it that export management wants to achieve by using price as a marketing tool? There are many objectives in pricing (see Table 10.2) and as many strategies. For example, in a recent study of international pricing practice that was based on a series of 45 qualitative interviews with seasoned international business executives from five different countries, the author concludes that the respondent exporting firms did not employ separate objectives for pricing decisions (Stottinger, 2001). Interestingly, the responding firms stated either financial or nonfinancial goals as key objectives for their international business. More explicitly, maintaining market share or increasing international market coverage ranked first. Only one-third of the firms in the sample were using financial goals to measure performance. What seemed in particular to influence the price goals were the companys experience in exporting and the distribution system in which the company was operating internationally.

Satisfactory return on investment Maintaining market share Meeting a specified profit goal Largest possible market share Meeting a specific sales goal Profit maximization Pricing at the high end of the price range Highest return on investment Prices are set at a high level and then lowered after a certain period has elapsed Meeting competition

4.2 Pricing strategies effective in export markets. Setting product prices is one of the most important aspects of attracting customers and achieving profitability. Consumers won't buy products that are priced too high, and a business can't make a profit if its prices are too low to cover its expenses. Businesses employ a variety of different pricing strategies to position products in the market and meet sales goals.Competitive PricingCompetitive pricing means setting prices relative to competitors. For example, a new neighborhood restaurant might use the prices of entrees at other restaurants in the area to inform pricing decisions. Companies may choose to set prices slightly below those offered by competitors to attract more customers. Competitive pricing can potentially result in a price war, in which competitors repeatedly slash prices in an attempt to undercut one another.Cost-Based PricingCost-based pricing is a strategy that uses the cost of production as a baseline to inform pricing decisions. For instance, a company that sells office supplies might set prices that are 10 percent higher than production costs to ensure that it covers its expenses. Similarly, a company that sells T-shirts could simply charge a $5 markup over the production costs of all of its products. Cost-based pricing is a relatively straightforward strategy since it doesn't take consumer demand or competition into account.Value PricingSetting prices based on the benefit or value consumers derive from products is called value pricing. In other words, value-based pricing seeks to set prices based on what consumers are willing to pay. A business pursuing value-based pricing might charge prices that are significantly higher than competitors if it believes its products are more valuable to consumers than those offered by competitors or if wishes to establish itself as a luxury brand. Value-based pricing requires managers to have a deep understanding of customer needs and preferences.Anti-Competitive Pricing PracticesAnti-competitive pricing tends to harm competition, which can force businesses out of the market or result higher prices for consumers. For example, a large company might set its prices artificially low to force smaller competitors out of business, a practice known as "predatory pricing." When companies collude to set high prices across an industry to increase profits it is called price-fixing, another anti-competitive practice. Businesses that engage in anti-competitive pricing can be subject to legal action by the U.S. Federal Trade Commission.

Some Common Types Of Export Pricing Are Skimming The Market Sliding Down The Demand Curve Penetration Pricing Pre-Emptive Pricing Extinction Pricing

1. Skimming The Market

A simple, and somewhat unusual, objective might be to make the largest short-run profit possible and retire from the business. This involves the strategy of getting the highest possible and retire from the business. This involves the strategy of getting the highest possible price out of a products distinctiveness in the short run without worrying about the long-run company position in the foreign market. A high price is set until the small market at that price is exhausted. The price may then be lowered to tap a second successive market or income level. However, little thought is given to the companys permanent position in the field. This strategy may be used either because the company feels that there is no permanent future for the product in a foreign market or markets or that its costs are high and a competitor may come in and take the market away.

2. Sliding Down The Demand Curve

This resembles the above strategy except that in this case the company reduces prices faster and further than it would be forced to do in view of potential competition. A company pursuing this strategy has the objective to become established in foreign markets as an efficient producer at optimum volume before foreign or domestic competitors can get entrenched. This is primarily used by companies introducing product innovations. Here the strategy involves starting out with almost the entire emphasis on pricing on the basis of what the market will bear and moving from this point toward cost pricing at a measured pace. The pace must be slow enough to pick up profits but fast enough to discourage competitors from entering the market. Companies following this strategy are seeking to recover development costs as they become an established entity in the market.

3. Penetration Pricing

This strategy involves establishing a price sufficiently low to rapidly create a mass market. Emphasis is placed on value rather than cost in setting the price. Penetration pricing involves the assumption that if the price is set to bring in a mass market, the effect of this volume will be to lower costs sufficiently to make the price yield a profit. In an industry of rapidly decreasing costs, penetration pricing can accelerate the process. The strategy also involves the assumption that demand is highly elastic or that foreign purchasers buy primarily on a price basis. This strategy may be more appropriate than skimming for multinational companies facing the demand conditions of the less developed countries.

An extreme form of penetration pricing is expansionistic pricing. This is the same as penetration pricing except that it goes much lower in order to get a larger percentage of the customers who are potential buyers at very low prices. This strategy assumes: (1) a high degree of price elasticity of demand and 92) costs extremely susceptible to reduction with volume output. This may be based on experience curve pricing.

4. Pre-Emptive Pricing

Setting prices so low as to discourage competition is the objective of preemptive pricing. The price will be close to total unit costs for this reason. As lower costs result from increased volume, still lower prices will be quoted to buyers. If necessary to discourage potential competition prices may even be set temporarily below total cost. The assumption is that profits will be made in the long run through market dominance. This approach, too, may utilize experience curves.

5. Extinction Pricing

The purpose of extinction pricing is to eliminate existing competitors from international markets. It may be adopted by large, low-cost producers as a conscious means of driving weaker, marginal producers out of the industry. Since it may prove highly demoralizing, especially for small firms and those in newly developing countries, it can slow down economic advancement and thus retard the development of otherwise potential markets.

Preemptive and extinction pricing strategies are both closely associated with dumping in international markets. Actually, they are merely variations of the dumping process, depending upon the domestic or home market price. Although they may serve to capture initially a foreign market and may keep out, or drive out, competitors, they should be used only with extreme caution. There is the ever present danger that foreign governments will impose arbitrary restrictions on the import and sales of the product, consequently closing the market completely to the producer. More important, once customers have become used to buying at low prices it may prove difficult, if not impossible, to raise them subsequently to profitable levels.

Chapter 5: Pricing Strategies Adopted By Companies

Louis VuittonSuccessfully using premium prices. Louis Vuitton has opened its 46th store in Japan, where the combination of its status-symbol name and high prices appeal to a growing market segment of young, educated single women still living with their parents. They splurge on products with cachet while cutting costs on other items. Louis Vuitton sells more than twice as many handbags in Japan as in all of Europe. Maintaining high prices that support their positions as status symbols Vuitton, Channel and Hermes do well while the overall market for luxury goods in Japan has been falling since 1996 (Katz, 2003).

VolkswagenA problem in failing to meet price competition. With the weak dollar failing to adequately cover high euro prices for labor and parts in Germany, Volkswagen AG adopted a strategy of reducing discounts on cars being sold in the United States. Their US sales fell 30% in the first two months of 2004, and VW then resumed offering competitive discounts (White, 2004).

Airline IndustrySuccesses in using low price strategies. Ryanair of Ireland and Southwest Airlines of the United States are two very successful airlines that were both founded on the premise that they could provide low-cost scheduled air service at prices below those charged by the major airlines. They maintain substantially lower cost structures for personnel and overheads than the traditional international airlines, and fly only routes where they can attain high load factors for the aircraft they use. Most past attempts to challenge traditional carriers have failed (Szuchman and Cary, 2004) due to overexpansion, failure to reach and maintain an adequate number of customers, letting costs rise, or failing to meet emerging competition from other low-cost airlines or changes by the traditional carriers. In 2003 Ryanair was very profitable and had a market capitalization exceeding that of British Airways, Lufthansa and Air France combined (Capell, 2003). Southwests earnings in 2003 exceeded the combined totals for all of the USs other airlines combined (Server, 2004).

Old NavyPricing to capture an additional market segment. Ten years ago, mid-priced Gap Inc. clothing company launched a less expensive chain of stores, Old Navy, to appeal to customers who wanted cheaper prices. With good merchandising and its current emphasis on cheap chic, Old Navy stores have been very successful, occasionally selling more clothes than the Gap stores (Strasburg, 2004).

P&GAn experiment in pricing. Procter & Gamble has traditionally focused on in-house development of new products, setting initial prices at a high level to cover development costs and advertising, and then cutting prices as competitors move in. But in January 2001 they took a new approach in acquiring a low-cost battery-powered toothbrush from outside entrepreneurs, who they also hired to assist in marketing. Focus groups and the prior experience of the entrepreneurs in selling the electric toothbrush to selected retailers indicated that, with a toothbrush design that would apparel to children and with proper packaging, advertising would not be necessary for the product launch. The price was set at $5, far below the prices of $50 or more for most electric toothbrushes and one-fourth the cost of a recently introduced low-priced electric toothbrush. The Spin Brush was a great success and, in P & Gs quickest global rollout ever, posted global sales of over $200 million in 2001 (Berner, 2002).

Toys R UsChanging competition, changing strategies. Toys R Us grew rapidly in the United States and overseas based on a low-price strategy. It was able to do this through high volume that allowed them to obtain low prices from manufactures. Now, faced with growing competition from Wal-Mart in the Unite States, they are closing US stores, emphasizing some different product lines, and increasing their operations in smaller overseas markets that do not have extremely large competitors such as Wal-Mart.

McDonalds

A disaster in pricing. In 1997 McDonalds Holding Co. (Japan) was the market leader in hamburger chains, a position it had held since entering the market. The chairman of the company came up with a plan to increase that share by offering a burger for the extraordinarily low price of V59, far below that of any competitor. He was able to do this because he had contracted for a large amount of beef priced in dollars shortly before a substantial increase in the value of the yen. He expected to be able to continue to get beef at a very low price. The company enjoyed initial success as greatly increased volume raised profits in spite of the drop in prices. However, the temporary advantages gained from lower prices disappeared under a combination of price cuts by competitors, a drop-off in customers as the novelty wore off, and an inability to gain long-term cost advantages in using forward purchases of foreign exchange. McDonalds subsequently raised prices to a point part-way between the original prices and the lowest prices, but profits suffered. In 2003 McDonalds Japan had its first loss in 30 years and the chairman resigned (Tanaka, 2003).

Chapter 6: ConclusionThe value of a product to the last prospective customer fixes the ceiling on price while cost sets the floor. However, there are tow cost floors: one set by direct or relevant costs (the lowest floor) and one set by full cots. In any export price decision the appropriate cost floor depends upon the companys goals or objective in pricing. Between the cost floor and demand ceiling gap. Where in this gap to set the price depends upon such factors as the nature and type of competition, the legal/political situation, and the overall export marketing program.

These pricing strategies can be classified as either high price or low price. A high price with limited international market objective has merit under the following conditions:

The product is unique in character and is well protected legally both domestically and in foreign countries so that no direct or indirect competition may be expected. Foreign market acceptance of the new product will require considerable educational or promotional effort, and at best product acceptance will be slow. The ultimate size of the foreign market is expected to be small and of insufficient size to attract competition or to justify extensive market promotion. The manufacturer has limited financial resources and, therefore, is unable to expand rapidly in international markets. Output cannot be expanded rapidly to satisfy probable foreign demand because of technical difficulties.

In the final analysis there are different approaches to pricing strategy; and there is no one master policy or procedure that should be used under all circumstances or in all foreign markets a(see also Myers and Cavusgil (1996)). Pricing strategy is a matter of having as much information as possible about costs and the value of a product to various classes of consumers in different markets. With this information and intelligent application the danger of an exporting company pricing itself out of potentially profitable markets is considerably reduced. Given the importance firms attach to international pricing, however, it is a wonder that most exporting companies do not apply more systematic approaches to price-related issues. In the above-mentioned study on international price practices (Stottinger, 2001) the overall impression of how industrial exporters deal with international pricing issues was as follows: anchored around the strategic price position, managers set a certain, implicit price level. This price level serves as a guideline and overall benchmark. For setting prices, firms choose either a fixed or a flexible cost-plus approach. The calculation approach and the goals that are set are a matter of international experience. The size and the design of the firms international distribution systems will mediate the final solution. The price decision is most likely taken centrally under the supervision of top management. Furthermore, the study concludes that the importance of pricing compared with other marketing decisions was at least highlighted by the responding exporting firms.

Chapter 7: References1. Barnes, D., (2009).Price management: an international perspective. UK: Cengage Learning EMEA.2. Cooper, R.G., Edgett, S.J. (2009).Product Innovation and Technology Strategy. USA: Stage-Gate International.3. Baker, S., & Mouncey, P., 2003. The market researcher's manifesto. International Journal of Market Research 45 (4), 415433. 4. Connell, S., 2002. Travel broadens the mind The case for international research. International Journal of Market5. Research 44 (1), 97106.Craig, C.S., & Douglas, S.P., 2005. International marketing research (3rd Ed.). Wiley, New York.Czinkota, R.C., & Ronkainen, I.A., 2002. International marketing.6. Fort Worth, TX: Harcourt College Publishers.Dodd, J., 1998. Market research on the Internet Threat oropportunity? Marketing and Research Today 26 (1), 6066. Douglas, S.P., & Craig, C.S., 2000. International marketing research (2nd Ed.). 7. New York: Wiley.Han, C.M., Lee, B.-W., & Ro, K.-K., 1994. The choice of a survey mode in country image studies. Journal of Business Research 29 (2), 151162.8. Iyer, R., 1997. A look at the Indian market research industry. Quirk's Marketing Research Review 11 (10), 2226.9. Javalgi, R., & White, D.S., 2002. Strategic challenges for the marketing of services internationally. International Marketing Review 19 (6), 563581.10. Jeannet, J.-P., & Hennessey, H.D., 2001. Global marketing strategies (5th Ed.). Boston: Houghton Mifflin Company. Kumar, V., 2000. International marketing research. Upper Saddle River, NJ: Prentice Hall.Lee, B., & Wong, A. (1996). 11. An introduction to marketingresearch in China. Quirk's Marketing Research Review, 10 (10), 1819, 3738.12. http://courseblog-ib2208.blogspot.in/2009/03/product-pricing-branding-decision.html13. http://smallbiztrends.com/2013/08/what-is-Pricing.html14. http://en.wikipedia.org/wiki/Pricing15. http://www.knowthis.com/product-decisions16. http://www.oppapers.com/subjects/price-strategy-page1.html17. http://christophe.benavent.free.fr/IMG/pdf/

1