Question

Students are required to find an article that discusses the current international pricing strategies of any firm from various industries. The topic should be relevant to how firms adapt their pricing strategies to deal with foreign market difficulties.

1) Attach the link of source (papers, articles, WebPages etc);

2) Write a brief summary (1-2 page, double space, 12pt) of what you found and evaluate the effectiveness of the international pricing strategies;

Answer 1

1. The source of the articles are Business insiders, Export Government Articles, Marketing mix strategy Books.

2. International pricing is often considered the most critical and complex issue in international marketing. When talking about the price of a product, it is important to notice that it is a sum of all monetary and non-monetary assets the customer has to spend in order to obtain the benefits it provides. The main pricing decisions in international marketing comprise the following

The overall international pricing strategy determines general rules for setting (basic) prices and using price reductions, the selection of terms of payment, and the potential use of counter trade.

■ The price setting strategy determines the basic price of a product, the price structure of the product line, and the system of rebates, discounts or refunds the firm offers.

■ The terms of payment are contractual statements fixing, for example, the point in time and the circumstances of payment for the products to be delivered.

A company's pricing strategy is a highly cross-functional process that is based on inputs from finance, accounting, manufacturing, tax and legal issues

Premium pricing: high price is used as a defining criterion. Such pricing strategies work in segments and industries where a strong competitive advantage exists for the company. Example: Porche in cars and Gillette in blades.

Penetration pricing: price is set artificially low to gain market share quickly. This is done when a new product is being launched. It is understood that prices will be raised once the promotion period is over and market share objectives are achieved. Example: Mobile phone rates in India; housing loans etc.

Economy pricing: no-frills price. Margins are wafer thin; overheads like marketing and advertising costs are very low. Targets the mass market and high market share. Example: Friendly wash detergents; Nirma; local tea producers.

Skimming strategy: high price is charged for a product till such time as competitors allow after which prices can be dropped. The idea is to recover maximum money before the product or segment attracts more competitors who will lower profits for all concerned. Example: the earliest prices for mobile phones, VCRs and other electronic items where a few players ruled attracted lower cost Asian players.

These are the four basic strategies, variations of which are used in the industry.

Where demand is uncertain, high prices can establish an initial fix on the level of demand and then be reduced later as appropriate. The disadvantage is that the higher the pricing, the more attractive the opportunity will appear to competitors. Companies need to think carefully about how long they have to pursue their strategy and what market position, if any, they hope to be able to maintain once competition appears. Being the innovator that first brought the product to market may ultimately be less appealing than being the quality or the low-cost provider to mass markets.

The pricing of any product is extremely complex and intense as it is a result of a number of calculations, research work, risk taking ability and understanding of the market and the consumers. The management of the company considers everything before they price a product, this everything includes the segment of the product, the ability of a consumer to pay for the products, the conditions of the market, action of the competitor, the production and the raw material cost or you can say the cost of manufacturing, and of course the margin or the profit margins.

A few companies adopt these strategies in order to enter the market and to gain market share. Some companies either provide a few services for free or they keep a low price for their products for a limited period that is for a few months. This strategy is used by the companies only in order to set up their customer base in a particular market. For example France telecom gave away free telephone connections to consumers in order to grab or acquire maximum consumers in a given market. Similarly the Sky TV gave away their satellite dishes for free in order to set up a market for them. This gives the companies a start and a consumer base.

The pricing Strategies of these products are considered as no frill low prices where the promotion and the marketing cost of a product are kept to a minimum. Economy pricing is set for a certain time where the company does not spend more on promoting the product and service. For example the first few seats of the airlines are sold very cheap in budget airlines in order to fill in the airlines the seats sold in the middle are the economy seats where as the seats sold at the end are priced very high as that comes under the premium price strategy

Psychological pricing Strategies is an approach of gathering the consumer’s emotional respond instead of his rational respond. For example a company will price its product at Rs 99 instead of Rs 100. The price of the product is within Rs 100 this makes the customer feel that the product is not very expensive. For most consumers price is an indicating factor for buying or not buying a product. They do not analyze everything else that motivates the product.

It is a general approach, if the companies decrease the price of a product or a service they do increase their price for their other available optional services. Let’s take a very simple and a common example of a budget airline. The prices of their airfare are low however they will charge you extra if you want to book a window seat, if you want to travel with your family and want to book an entire row together you might have to end up paying extra charges as per the their guidelines, in case you have too much of luggage to carry you will end up paying extra on the same, in fact you will end up paying extra charges even if you need extra leg space in a budget airlines.

Promotional pricing is very common these days. You will find it almost everywhere. Pricing for promoting a product is another very useful and helpful strategy. These promotion offers can include, discount offers, gift or money coupons or vouchers, buy one and get one free, etc. to promote new and even existing products companies do adopt such strategies where they roll out these offers to promote their products. An old strategy yet it is one of the most successful pricing strategies till date.

Pricing completely depends on the 4P pricing strategy in marketing which is very important and it needs to be considered before pricing any product. The management of the company needs to price their products and services very effectively as they do not want to enter into any situation where their sales take a hit due to relatively high price when compared with their competitors, neither would the company want to keep a price too low to maximize profits or enter into losses. Hence pricing needs to be done very smartly and effectively making sure the management of the organization considers every aspect before they price a product.