International Pricing Policy
Price may be defined as the exchange of goods or services in terms of money. Without price there is no marketing, in the society. To a manufacturer, price represents quantity of money (or goods and services in a barter trade) received by the firm or seller. To a customer, it represents sacrifice and hence his perception of the value of the product. Conceptually, it is:-
Price = Quantity of money received by the seller/Quantity of goods and services rendered received by the buyer
The term ‘price’ needs not be confused with the term ‘pricing’. Pricing is the art of translating into quantitative terms (rupees and paise) the value of the product or a unit of a service to customers at a point in time.
According to Prof. K.C. Kite, “Pricing is a managerial task that involves establishing pricing objectives, identifying the factors governing the price, ascertaining their relevance and significance, determining the product value in monetary terms and formulation of price policies and the strategies, implementing them and controlling them for the best results”.
Pricing refers to the value determination process for a good or service, and encompasses the determination of interest rates for loans, charges for rentals, fees for services, and prices for goods. Pricing decisions are difficult to make even when a company operates only in a domestic market, and the difficulty is still greater in international markets. Multiple currencies, trade barriers, additional cost considerations, and longer distribution channels make price determination more complex in international markets.
Globalization of business has put increased pressure on the pricing systems of companies which enter international markets. These companies have to adapt their pricing structures as they graduate from being purely domestic players to exporters, and then to overseas manufacturers.
The earlier pricing structures used by them may no longer be appropriate in the complex international environment characterized by high competition, more global players, rapid changes in the technology, and high-speed communication between markets.
Companies operating in international markets have to identify:
- The best approach for setting prices worldwide.
- The variables those are important in determining prices in international markets.
- The level of importance that needs to be given to each variable.
- The variance in prices across markets.
- The variance in prices across customer types.
- The factors to be considered while determining transfer prices,
Pricing decisions cannot be made in isolation because pricing affects other marketing decision variables and determines:
- The customer’s perception of value.
- The level of motivation of intermediaries.
- Promotional spending and strategy.
Pricing, an important decision in any business, be it domestic or international, directly affects revenue and thus profitability. Further, appropriate pricing aids proper growth, as development of a mass market depends to a large extent on price. For businesses dependent on acquiring business contracts through competitive bidding, such as the construction and mining industries and drilling companies, a poor pricing decision threatens survival. Too high a price may mean no business, while a lower price may lead to a unprofitable operation. In many cases, the price indicates a product’s quality. If the Mercedes car, e.g., were priced in the same range as the Oldsmobile, the Mercedes would lose some of its quality image. Finally, price affects the extent of promotional support to be allocated to a product.