Basics of Pricing

Developing an appropriate pricing strategy requires a company to consider the results of each of its decisions for the company, the marketplace, and the customers they are targeting. For example, if the strategy's goal is to attract customers based on features and benefits, then a company may choose to take a non-competitive approach. However, if customers use price as a decision-making factor, then the company will want to use a competitive pricing strategy. We must also consider the pros and cons of pricing above or below a competitor and how to price a new entry into the marketplace. New entry pricing generally relates to the demand for the item. For example, when Amazon first introduced the Kindle, its price was extremely high. It was unclear how well this new technology would be adopted, and the high price led to low sales levels. As the popularity of the Kindle grew, the price was reduced considerably, and sales increased dramatically. When applying pricing strategies to international markets, there are even more factors to consider, which we will explore later. Read this chapter for an in-depth look at global pricing strategies and the factors that can impact business decisions including currency fluctuations, governmental controls, inflation, as well as competitive forces.

Global Pricing Summary

Pricing decisions are a critical element of the marketing mix that must reflect costs, competitive factors, and customer perceptions regarding value of the product. In a true global market, the law of one price would prevail. Pricing strategies include market skimming, market penetration, and market holding. Novice exporters frequently use cost-plus pricing. International terms of a sale such as ex-works, F.A.S., F.O.B., and C.I.F. are known as Incoterms and specify which party to a transaction is responsible for covering various costs. These and other costs lead to export price escalation, the accumulation of costs that occurs when products are shipped from one country to another.

Expectations regarding currency fluctuations, inflation, government controls, and the competitive situation must also be factored into pricing decisions. The introduction of the euro has impacted price strategies in the EU because of improved price transparency. Global companies can maintain competitive prices in world markets by shifting production sources as business conditions change. Overall, a company's pricing policies can be categorized as ethnocentric, polycentric, or geocentric.

Several additional pricing issues are related to global marketing. The issue of gray market goods arises because price variations between different countries lead to parallel imports. Dumping is another contentious issue that can result in strained relations between trading partners. Price fixing among companies is anticompetitive and illegal.

Transfer pricing is an issue because of the sheer monetary volume of intra-corporate sales and because country governments are anxious to generate as much tax revenue as possible. Various forms of countertrade play an important role in today's global environment. Barter, counterpurchase, offset, compensation trading, and switch trading are the main countertrade options.

Source: Babu John Mariadoss, https://opentext.wsu.edu/mktg360/chapter/chapter-12-public-relations-social-media-and-sponsorships/
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