Question

Why do you think that pricing is considered as one of the most complicated areas encountered by international marketers? Compare between skimming and penetration pricing strategies in international marketing. List the factors which lead to price escalation in international markets. Support your answer with related examples

Answer 1

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Below are the answer to your question

A) : Pricing is considered as one of the most complicated areas encountered by international marketers

Explanation

Pricing, as part of the marketing mix, is essential and has been always one of the most difficult decisions in marketing because of increased competition, counterfeit activities, regional trading blocks and volatile exchange rates. Consumers have different perception of the products depending on the price.

Furthermore, other factors such as: the rate of return, market stabilization, demand and competition-led pricing, market penetration, early cash recovery, prevention of competitive entry, company and product factors, market and environmental factors are all important in the decision making process

Pricing for international markets involves other factors related to foreign customer behaviors such as: economic and political aspect of target market, education and technological, values and attitudes, social and cultural, language, religion and beliefs, legal as well as competitive factors to mention a few.

B) Compare between skimming and penetration pricing strategies in international marketing.

Penetration pricing and price skimming are marketing strategies commonly implemented when companies launch new products or services. Both approaches have worked for businesses, but you have to understand how your price relates to your overall marketing and promotions strategies. Penetration pricing relies on a low upfront price to attract customers, while skimming is the use of high upfront prices to maximize short-term profits from the most eager and interested customers

Example of Penetration Pricing Versus Price Skimming

Grocery giant Costco uses penetration pricing for the organic foods it sells. Overall, the margin on organic groceries is much higher than it is for regular groceries, and organic is a high-growth niche, meaning more and more customers are buying organic produce. As a result, many retailers offer organic products at elevated prices, often adopting a price skimming strategy whenever a new organic product comes onto the market.

Costco, by contrast, uses a penetration pricing strategy. The chain attracts consumers by selling it's range of organic products at lower prices. While undoubtedly a risky strategy for small businesses, Costco can do this because of their large market share.

C) List the factors which lead to price escalation in international markets

Price escalation refers to economics. It’s the idea where a price will increase when a good is exported and imported into a new foreign market. It’s a similar concept to inflation. However, it’s majorly to do with individual products, rather than an entire store or market.

Inflation will affect all of your products, whereas price escalation might only affect some of them. Often you’ll have to pay for goods or services for your business and depending on where you source these from, your business costs could increase.

List of factors which lead to price escalation in international markets

1. Tariffs you have to pay to import (or export) goods
2. Added duties to pay
3. Transportation costs
4. Storing your products in warehouses

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