Price is a part of the marketing mix; the price is what the consumer pays. It includes direct and indirect costs as well as opportunity costs.
How do you set monetary prices? There are basically two ways. I call these cost-based pricing and value-based pricing. Cost-pricing is based on the total of all costs associated with delivering a product or service to a customer. An example of cost-based pricing would be when an organization identifies all of the costs associated with producing a product, or service, adds them up, adds a margin for profit (in the business sector) and arrives at the “price” the customer is to be charged. Value-based pricing is based on an organization’s perception of the value the potential customer might place on the product or service. The importance of price in an international market is; (a) Only element in the marketing mix that produces revenue, (b) the most flexible element.
Factors Influencing the International Price
Factors internal to an international firm
Strategic Objectives
• Cost leader, differentiation, focus
• Gain market share, product market share, to maintain status quo
• Revenue, profit or market share maximization
Marketing Mix Policies
• Production, place and promotion
Costs
• Short term v/s long term cost focus
• Full cost, variable cost, marginal cost pricing
Organizational Considerations
• Transfer pricing
• Cost v/s profit center
Factors External to an International Firm
• Nature of the market (buyer or seller)
• Level of market development / sophistication
• Market demand and consumers’ ability to buy
• Competitive situation and consumer surplus
• Product life-cycle-stage
• Type of packaging, environmental issues
• Distribution and marketing costs
• Transportation costs
• Government policies, tariffs, taxes and other restrictions
• Country of origin image
• After-sales service, warranties and guaranties
• Exchange rate fluctuation
• Environmental factors
• Hidden costs
Factors Contributing the Selection of the Final price
• Psychological effects of price
• Influence of other marketing mix elements
• Company pricing policies
• Costs
• Impact of price on other parties )distributors or dealers, company sales force, competitors)
Managing Price Escalation in Foreign Markets
• Rearrange the distribution channel (length of channel / exorbitant margins)
• Eliminate costly features (no-frills versions – sell core products)
• Downsize the product (offer smaller version or a lesser count)
• Assemble or manufacture the product in foreign markets (closer proximity to customers – lower costs)
• Adapt the product to escape tariffs and taxes (By shifting it to different tax classification)
Pricing in Inflationary Environments
• Modify components, ingredients, parts and/or packaging materials
• Source materials from low-cost suppliers
• Shorten credit terms
• Include escalator clauses in long-term contracts – to hedge against inflation
• Quote prices in a stable currency
• Pursue rapid inventory turnovers
• Draw lessons from other countries