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


• 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

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