Unity University

Faculty of Business & Economics

Management and Marketing Department
MBA Program

GLOBAL MARKETING
Chapter 6

Creating Global Marketing Programs:

Global Pricing Decisions
By Mesfin Lemma (PhD; Asso. Prof.)
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Learning Objectives
• Discuss basic pricing concepts
• Identify the environmental factors that influence pricing decisions
• Compare and contrast the objectives and methods of global pricing strategies
• Discuss the issues associated with gray marketing
• Explain the causes and effects of dumping
• Discuss transfer pricing issues and alternatives
• Distinguish between three global pricing policies

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Contents
• Basic Pricing Decisions

• Environmental Influence on Pricing Decisions

• Different Approaches to International Price Setting

• Global Pricing Objectives and Strategies

• Gray Market Goods, Dumping and Transfer Pricing

• Global Pricing: Three Policy Alternatives

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Global Pricing
Basic Pricing Concepts
• Price is the only area of the global marketing mix where policy can be changed without
direct cost implications.
• It does not cost anything to raise for lower prices: at least not immediately.
• The goal of pricing policy and strategy should be to set the right price, and the right
price is the price that creates the greatest value for customers and the strongest competitive
position for the company.
• The global pricing policy and strategy of a company must address the challenge of setting
the right price in each country.
• In each country costs, competition, and the value of a company’s product or service is different.
• There are three basic factors that determine the boundaries within which market prices
should be set: cost, competition, and demand. 4
Basic Pricing Concepts cont’d

• Product cost: which establishes a long-run price floor, or minimum price.

• Competition: which is defined by customers.
• Your competitors are those companies whose products compete with your
products from the consumer point of view.
• Demand and value: price is a cue for value and, in the case of luxury product,
is part of value.
• A cheap luxury watch is an oxymoron: there is no luxury without a luxury
price.

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Envirnomental Influences on Pricing Decisions
• Global marketers must deal with a number of environmental
considerations when making pricing decisions.
• Among these are:
• Currency fluctuations
• Inflation
• Government controls and subsidies
• Competitive behavior and market demand
• Some of these factors work in conjunction with others:
• For example, inflation may be accompanied by government controls
6
Envirnomental Influences on Pricing Decisions cont’d
• Currency fluctuations
• Fluctuating currency values are a fact of life in international business. The marketer must
decide what to do about this fact.
• Are price adjustments appropriate when currencies strengthen or weaken?
• There are two extreme positions
• One is to fix the price of products in country target markets.
• If this is done, any appreciation or depreciation of the value of the currency in the country of
production will lead to gains or losses for sellers.
• The other extreme position is to fix the price of products in home country currency.
• If this is done, any appreciation or depreciation of the home country currency will result in price
increases or decreases for customers, with no immediate consequences for the seller.

• In practice, companies rarely assume either of these extreme positions

• Pricing decisions should be consistent with the company’s overall business and
marketing strategy. 7
Envirnomental Influences on Pricing Decisions cont’d
• If the strategy is long term, then it makes no sense to give up market share in order to
maintain export margins.

• When currency fluctuations result in appreciation in the value of the currency of

a country that is an exporter, wise companies do two things:
• They accept that currency fluctuations may unfavorably impact operating margins and they
double their efforts to reduce costs.
• In short run, lower margins enable them to hold up prices in target markets and in the longer
run, driving down costs enables them to improve operating margins.
• For companies that are in a strong competitive market position, price increases can be
passed on to customers without significant decreases in sales volume.
• In more competitive market situations, companies in a strong-currency country will often
absorb any price increase by maintaining international market prices at pre-revaluation
levels. 8
Envirnomental Influences on Pricing Decisions cont’d
• Currency fluctuations cont’d
• In actual practice, a manufacturer and its distributor may work together to maintain market share
in international markets.
• Either party, or both, may choose to take a lower profit percentage.
• The distributor may also choose to purchase more product to achieve volume discounts;
another alternative is to maintain leaner inventories if the manufacturer can provide just-in-
time delivery.
• By using these approaches, it is possible to remain price competitive in markets in which
currency devaluation in the importing country is a price consideration.
• A more detailed overview of how a company can react is provided in Table 6.1, if its
international business activities suffer from volatile currency conditions.
• If a country’s currency weakens relative to a trading partner’s currency, a producer in a weak-
currency country can cut export prices to hold market share or leave prices alone for
healthier profit margins.
9
Envirnomental Influences on Pricing Decisions cont’d
Table 6.1 International pricing strategies under varying currency conditions

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Source: Keegan & Schlegelmilch (2001: 400)
Envirnomental Influences on Pricing Decisions cont’d

• Currency fluctuations
• BMW experienced three problems in the 1980s, when exchange rates of DM to USD changed
considerably. Table 6.2 visualizes this classical dilemma

Table 6.2 Exchange rates and pricing: BMW in the US

To achieve 1986 profit levels, the car would have to cost $67,800 (i.e. .a 226 percent price increase)
Source: Keegan & Schlegelmilch (2001: 401)

• As you can see from Table 6.2, the exchange rate between DM and USD declined (56%),
this means that DM became stronger against the USD in 1992. Price then has to increase
from $30,000 (1986) to $42,500 (1992) by 42%
• Sales of BMW in DM declined from 107,700 DM in 1986 to 67,575 DM in 1992. 11
Envirnomental Influences on Pricing Decisions cont’d

• Currency fluctuations cont’d

• Many sales are contracts to supply goods or services over time.
• When these contracts are between parties in two countries, the problem of exchange rate
fluctuations and exchange risk must be addressed.
• In this case, an exchange rate clause may solve some problems.
• An exchange rate clause allows the buyer and seller to agree to supply and purchase at fixed
prices in each company’s national currency.
• If the exchange rate fluctuates within a specified range, say plus or minus 5 percent, the
fluctuations do not affect the pricing agreement that is spelled out in the exchange rate
clause.
• Small fluctuations in exchange rates are not a problem for most buyers and sellers.
• Exchange rate clauses are designed to protect both the buyer and seller form unforeseen
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large swings in currencies.
Envirnomental Influences on Pricing Decisions cont’d

• Currency fluctuations cont’d

• The basic design of an exchange rate clause is straightforward:
• Review exchange rates periodically (this is determined by the parties; any interval is
possible, but most clauses specify a monthly or quarterly review).
• Compare the daily average during the review period and the initial base average.
• If comparison produces exchange rate fluctuations that are outside the agreed range of
fluctuations, an adjustment is made to align prices with the new exchange rate if the
fluctuation is within some range.
• If fluctuation is greater than some limit, the parties agree to discuss and negotiate new
prices.
• In other words, the clause accepts the foreign exchange market’s effect on currency value, but only if it is
within a certain range of 5 to 10 percent.

• Any fluctuation within the range does not affect pricing; any fluctuation outside the 13
range specified opens up a re-negotiation of prices.
Envirnomental Influences on Pricing Decisions cont’d

• Inflation
• Inflation, or a persistent upward change in price levels, is a world-wide
phenomenon.
• Inflation requires periodic price adjustments.
• These adjustments are necessitated by rising costs that must be covered by
increased selling prices.
• An essential requirement when pricing in an inflationary environment is the
maintenance of operating profit margins.
• Regardless of cost accounting practices, if a company maintains its margins, it
has effectively protected itself from the effects of inflation.
• To keep up with inflation in Peru, for example, Procter & Gamble at one time 14
resorted to biweekly increases in detergent prices of 20 percent to 30 percent.
Envirnomental Influences on Pricing Decisions cont’d
• Inflation cont’d
• Taking only some of the accounting issues and conventions relating to price adjustments in
international markets.
• The traditional FIFO (first-in, first-out) costing method is hardly appropriate for an inflationary
situation.
• A more appropriate accounting practice under conditions of rising prices is the LIFO (last-in, first-
out) method, which takes the most recent raw material acquisition price and uses it as the basis for
costing the product sold.
• In highly inflationary environments, historical approaches are less appropriate costing methods
than replacement cost. The latter amounts to a next-in, first-out approach.
• Although this method does not conform to generally accepted accounting principles (GAAP), it is
used to estimate future price that will be paid for raw and component materials.
• Regardless of the accounting methods used, an essential requirement under inflationary
conditions of any costing system is that it maintains gross and operating profit margins.
• Managerial actions can maintain these margins subject to government controls and subsides, 15
and competitive behavior and market demand.
Envirnomental Influences on Pricing Decisions cont’d

• Government controls and subsidies

• If government action limits the freedom of management to adjust prices, the maintenance of
margins is definitely compromised
• Under certain conditions, government action is a real threat to the profitability of a
subsidiary operation.
• If a country is undergoing severe financial difficulties and is in the midst of a financial crisis
(e.g. a foreign exchange shortage caused in part by runaway inflation), government officials
are under pressure to take some type of action.
• For example, Procter & Gamble (P&G) encountered strict price controls in Venezuela in the
late 1980s.
• Despite increases in the cost of raw materials, P&G was granted only about 50 percent of the price
increases it requested.
• As a result, by 1988 detergent prices in Venezuela were less than what they were in other
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countries.
Envirnomental Influences on Pricing Decisions cont’d
• Government controls and subsidies cont’d
• In some cases, governments will take expedient steps rather than getting at the underlying
causes of inflation and foreign exchange shortages.
• Such steps might include the use of broad or selective price controls.
• Government control can also take the form of prior cash deposit requirements imposed on
importers.
• This is a requirement that a company has to tie up funds in the form of a non-interest-bearing
deposit for a specified period of time if it wishes to import products.
• Such requirements clearly create an incentive for a company to minimize the price of the imported
products; lower prices mean smaller deposits.
• Other government requirements that affect the pricing decision are profit transfer rules that
restrict the conditions under which profits can be transferred out of a country
• Under such rules, a high transfer price paid for imported goods by an affiliated company can be
interpreted as a device for transferring profits out of a country. 17
Envirnomental Influences on Pricing Decisions cont’d

• Government controls and subsidies cont’d

• Government subsidies can also force a company to make strategic use of sourcing to be
price competitive.
• In many countries, government subsidies to the agricultural sector make it difficult for foreign
marketers of processed food to compete on price when exporting there.
• In the EU, for example, by sourcing a product in France for resale in the Netherlands, a company
can take advantage of lower costs derived from subsidies and eliminate price escalation due to tariffs
and duties.

• Competitive behavior and market demand

• Price decisions are bounded not only by cost, but also by the nature of demand and
competitive action.
• A company producing a specialized product, or a product with a clear technological advantage
over competitive products has more flexibility in price setting than in a more competitive 18
environment.
Envirnomental Influences on Pricing Decisions cont’d
• Competitive behavior and market demand
• Pricing then is often reduced to a static role in the marketing mix.
• The contrary is true, when a company encounters fierce competition in a market.
• Particular aggressive competitors may use predatory pricing, but is extremely rare, because it
assumes the unlikely capability of a single producer to dominate a world market
• However, the approach of predatory pricing has been used as a suitable excuse for anti-dumping
sanctions.
• Under the title of predatory pricing, national governments can impose duties on cheap imports
that they judge as being dumped into their markets.
• If competitors do not adjust their prices in response to rising costs, management even if acutely
aware of the effect of rising costs on operating margins-will be severely constrained in its ability
to adjust prices accordingly.
• Conversely, if competitors are manufacturing or sourcing in a lower-cost country, it may be 19
necessary to cut prices to stay competitive.
Envirnomental Influences on Pricing Decisions cont’d

• Competitive behavior and market demand cont’d

• The interplay of these factors is reflected in the pricing policies adopted by
companies.

• With increasing globalization, there is greater competitive pressure on companies to

restrain price increase.

• In a globalized industry, companies must compete with companies from all over the
world.
• For example, in the car industry, there is a fierce struggle for market share by American, European,
Japanese and Korean companies, which makes it difficult for any company to raise prices.

• If a manufacturer does raise prices, it is important to make sure that the increase
does not put the company's product out of line with competitive alternatives.
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Different Approaches to International Price Setting
• When determing an international price, a company has three
different options:
• Rigid cost-plus pricing
• Flexible cost-plus pricing
• Dynamic incremental pricing

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Rigid cost-plus pricing
• Companies new to exporting frequently use a strategy known as cost-plus pricing
to gain a toehold in the global market place.
• Cost-plus pricing requires adding up all the costs involved in getting the product
to where it must go, plus shipping and ancillary charges and a profit
percentage.
• The advantage of using this method is its low threshold: it is relatively easy to
arrive at a quote, assuming that accounting costs are readily available.
• The disadvantage of using historical accounting cost to arrive at a price is that
this approach completely ignores demand and competitive conditions in target
markets.
• However, novice exporters often do not care. They are reactively responding to
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global market opportunities, not proactively seeking them.
Rigid cost-plus pricing (cont.)

• Usually cost-plus pricing results in either too low or too high prices in the light of market
and competitive conditions.
• The later phenomenon is also often called price escalation.
• Price escalation is the increase in a product’s price as transportation, duty and
distributor margins are added to the factory price. Table 6.3 illustrates the mechanism of
price escalation in international markets.
• A European manufacturer of household cleaning products intended to export products to
South America.
• The escalation of the C.I.F. Price to the retail shelf in South America, with transportation,
import duties and taxes, wholesaler and distributor margins, retail margins and VAT turned
out to be in excess of 300 percent.
• In many cases, this will price the exporter’s products out of the market and render an export
venture a failure.
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Table 6.3 An example of international price escalation

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Source: Keegan & Schlegelmilch (2001: 405)
Rigid cost-plus pricing (cont.)

• The global marketer has several options when addressing the problem of price escalation.
• The choices are dictated in part by product and market competition.
• Marketers of domestically manufactured finished products may be forced to switch to
lower income, lower-wage countries for the sourcing of certain components or even of
finished goods to keep cost and prices competitive.

• The low-wage strategy option should never become a formula.

• The problem with moving production to low-wage country is that it provides a
one-time advantage.
• This is no substitute for ongoing creativity in creating value.
• High-income countries are the home of thriving manufacturing operations run
by companies that have been creative in figuring out ways to drive down the
cost of labor as a percentage of total costs and in how to create a unique value.
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Rigid cost-plus pricing (cont.)

• Another option is to source 100 percent of a finished product offshore near or a

local markets.
• The manufacturer could enter into a licensing arrangement, a joint venture, or a
technology transfer agreement.
• The third option is a thorough audit of the distribution structure in the target
markets.
• A rationalization of the distribution structure can substantially reduce the total
mark-ups required to achieve distribution in international markets.
• Rationalization may include selecting new intermediaries, assigning new
responsibilities to old intermediaries or direct marketing operations such as selling
on the web.
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Flexible cost-plus pricing
• Prices are derived the same way as rigid cost-plus pricing.
• In this case however, price variations are allowed under special circumstances
• For example, the nature of the customer, the size of the order or the intensity of
local competition require more flexibility, prices are adjusted accordingly.
• Although this price-setting approach allows a higher degree of freedom to adjust
for local idiosyncrasies, the primary goal is still to maintain profit margins.
• This pricing approach may be used, if a company aims at holding its market share
in foreign markets.
• In single-country marketing, this strategy often involves reacting to price
adjustments by competitors.
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Flexible cost-plus pricing (cont.)
• For example, when one airline announces special bargain fares, most
competing carriers must match the offer or risk losing passengers.
• In global marketing, currency fluctuations often trigger price
adjustments.
• Companies from strong currency countries if they maintain their price
levels, may price themselves out of many international markets.
• To avoid this, companies may set prices based not on their home
currency price translated at the current exchange rate but rather, on the
competitive situation in each market and the ability and willingness of
customers to pay. 28
Dynamic incremental pricing
• This pricing option is based on the idea that fixed costs emerge regardless of whether
the company is internationally successful or not.
• Its primary goal is thus to regain at least variable and international marketing and
promotion costs in export ventures.
• As to the overhead they are only partly added. This practice allows a company to sell
at very competitive prices.
• This strategy is also known as penetration pricing.
• Penetration pricing uses prices as a competitive weapon to gain market position.
• Penetration pricing often means that the product may be sold at a loss for a certain
length of time.
• Sometimes, this puts incremental pricing close to the idea of dumping, which will be
reverberated through legal sanctions in most countries. 29
Dynamic incremental pricing (cont.)
• Companies that are new to exporting cannot absorb such losses.
• They are not likely to have the marketing system in place (including
transportation, distribution and sales organizations) that allow global
companies like Sony to make effective use of a penetration strategy.
• However, a company whose product is not patentable may wish to use
penetration pricing to achieve market saturation before the product is
copied by competitors.
• Dynamic incremental pricing also works in a different direction
• While under penetration pricing, prices start low and are increased
incrementally, market skimming introduces the product into a market at a
relatively high price, which is then lowered over a period of time.
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Dynamic incremental pricing (cont.)
• The market skimming pricing strategy is a deliberate attempt to reach a market
segment that is willing to pay a premium price for a product.
• In such instances, the product must create high value for buyers. This pricing strategy is
often used in the introductory phase of the product life cycle, when both production
capacity and competition are limited.
• By setting deliberately high price, demand is limited to early adopters who are willing
and able to pay the price.
• One goal of this pricing strategy is to maximize revenue on limited volume and to
match demand to available supply.
• Another goal of market skimming pricing is to reinforce customers’ perceptions of high
product value.
• When this is done, the price is part of the total product positioning strategy. 31
Dumping
• Dumping is an important global pricing issue.
• If a company exports a product at a price lower than the price it normally charges in its
own home market, it is said to be dumping the product.
• The question arises whether this practice is unfair competition.
• According to the WTO, opinions differ, but many governments take action against
dumping in order to defend their domestic industries.
• The WTO agreement does not pass judgment
• Its focus is on how governments can or cannot react to dumping-it disciplines anti-
dumping actions in a document often called the ’Anti-Dumping Agreement’.
• As the nature of these issues and regulations suggest, some countries use dumping
legislation as a legitimate device to protect local enterprise from predatory pricing
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practices by foreign companies.
Dumping cont’t
• Companies concerned with running foul of antidumping legislation have
developed a number of approaches for avoiding the dumping laws.
• One approach is to differentiate the product sold from that in the home
market.
• An example of this is an Auto accessory that one company packaged with
a wrench and an instruction book, thereby changing the accessory to a tool.
• Another approach is to make non-price-competitive adjustments in
arrangements with affiliates and distributors.
• For example, credit can be extended and essentially have the same effect
as a price reduction.
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Grey Markets and Parallel Imports
• Grey marketing is the distribution of trade-marked products in a country
through channels unauthorized by the trademark owner.
• Or to put it differently, grey marketers sell unauthorized imports of goods into a
market with a sales price less than the one offered by authorized distribution.
• Basically, they take advantage of price differences between markets, by re-
importing branded merchandise from low-price into high-price markets
• This practice is also known as parallel importing.
• While there are different ways of parallel importing their impact remains the
same: reduced or cannibalized sales for the producer in high price countries and
troubles with authorized sales channels.
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Grey Markets and Parallel Imports cont’d

• Manufacturers in EU put forward numerous arguments to fight parallel imports

• They point out that parallel imports may result in a loss of consumer confidence and
trust in branded goods.
• Not will only this discourage them form investment in their brand, but parallel
imports may also expose consumers to piracy and fraud.

• There are marketplaces where parallel importing is allowed: in the US and within EU
borders and obviously this does not appear to harm consumers.
• On the contrary, increased competition leads to lower prices
• Advocates of legalizing grey markets put forward that the parallel imports of
genuine Nike sports wear, for example, doe snot mean allowing in counterfeits as
well. 35
Transfer Pricing
• In determining transfer prices to subsidiaries global companies must address a number of
issues, including taxes, duties and tariffs, country profit transfer rules, conflicting
objectives of joint venture partners and government regulations.

• Transfer pricing refers to the pricing of goods and services bought and sold by
operating units or divisions of a single company.

• Transfer pricing concerns intra-corporate exchanges/transactions between buyers

and sellers that have the same corporate parent.
• For example, Toyota subsidiaries sell to and buy from each other.
• The same is true of other companies operating globally.
• As companies expand and create decentralized operations, profit centers become an
increasingly important component in the overall corporate financial picture.
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• Appropriate intra-corporate transfer pricing systems and policies are required to ensure
profitability at each level.
Transfer Pricing cont’d
• When a company extends its operations across national boundaries, transfer pricing takes
on new dimensions and complications.

• Figure 12.5 illustrates the principles of transfer pricing and demonstrates the scope for
profit increases through transfer price manipulations.

• There are three major alternative approaches to transfer pricing

• The approach used will vary with the nature of the firm, products, markets and historical
circumstances of each case.
• The alternatives are
1. Cost-based transfer pricing
2. Market-based transfer pricing
3. Negotiated prices
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Table 6.4 Basic principles of transfer pricing

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Source: Keegan & Schlegelmilch (2001: 414)

Transfer Pricing cont’d

Cost-based transfer pricing

• Some companies using the cost-based approach may arrive at transfer prices that reflect variable and
fixed manufacturing costs only.
• Alternatively, transfer prices may be based on full costs, including over-head costs from marketing,
research and development (R&D) and other functional areas.
• The way costs are defined may have an impact on tariffs and duties of sales to affiliates and
subsidiaries by global companies
• Cost-plus pricing is a variation of the cost-based approach.
• Companies that follow the cost-plus pricing method are taking the position that profit must be shown
for any product or service at every stage of movement through the corporate system.
• In such an instance, transfer prices may be set at a certain percentage of fixed costs, such as ”110
percent of cost”.
• While cost plus pricing may result in a price that is completely unrelated to competitive or demand 39
conditions in international markets, many exporters use this approach successfully.
Transfer Pricing cont’d
Market based transfer price
• A market-based transfer price derived from the price required to be competitive
in the international market
• The constraint on this price is cost
• However, as noted above, there is a considerable degree of variation in how
costs are defined.
• Because costs generally decline with volume, a decision must be made
regarding whether to price on the basis of current or planned volume levels.
• To use market-based transfer prices to enter a new market that is too small to
support local manufacturing, third-country sourcing may be required.
• This enables a company to establish its name or franchise in the market without 40
committing to a major capital investment
Transfer Pricing cont’d

Negotiated transfer prices

• In this alternative, organizations' allow affiliates to negotiate transfer
prices among themselves.
• In some instances, the final transfer price may reflect costs and market
prices, but this is not a requirement.
• The gold standard of negotiated transfer prices is known as an arm’s
length price: the price that two independent, unrelated entities would
negotiate.

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Standardisation versus Differentiation in International Pricing
• Besides the discussed approaches to international price setting, an important question is:
• Whether prices should be standardized across markets or differentiated between international
markets.
• A price differentiation may occur due to different levels of production or distribution costs.
• Also strategic considerations may lead a company to set different prices in international
markets.
• For example, in order to compensate for the effect of different levels of competitive intensity
or tax differences, it may make sense to charge different prices across borders.
• In practice companies do not act consistently.
• Based on a mail survey, one study finds that 70 percent of the firms in their sample of the top
350 of the Fortune 500 largest industrial companies and the 100 largest US multinational
companies standardized their prices, whereas 30 percent used variable pricing in world
42
markets.
Standardisation versus Differentiation in International Pricing cont’d

• Under certain circumstances, a firm uses pricing to aid its cross-subsidization strategies.
• Cross-subsidization means that a company uses financial resources accumulated in one part of
the world to fight a competitive battle in another.
• Figure 6.2 provides a list of factors impinging on whether to charge different or standardized
prices.
• According to Simon and Dolan, the decision to differentiate or standardize prices across
borders is influenced by four drivers:
• Factors driving price differentiation: market related drivers
• Factors driving price differentiation: external drivers
• Factors driving price standardization: external drivers
• Factors driving price standardization: company-related drivers
• Companies my find themselves in an awkward situation:
• While actual price differences-due to differences in production or distribution cost-may
appear justified, price standardization will very likely increase.
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• How will companies now be able to prevent prices standardizing at the lowest level possible?
 Figure 6.2 Influcences on Price
Standardisation vs. differntiation
Factors driving price Factors drivng price
differentiation standarisation
Market-related drivers

Customer preferences Reduction of trade

barriers

External drivers
Competive situation Decreasing
Optimal prices! Price transportation costs
differentiation?
Future developments
Active retailers/grey
Cost situation
markets/global sourcing

Inflation/exchange rates Imporved communication

External drivers

Company-realted
and information flow

drivers
Regulations/tariffs
and duties Increasing brand
44
globalisation/standardisation

Source: Simon and Dolan (1997: 168 cited in Keegan & Schlegelmilch 2001: 12)
Standardisation versus Differentiation in International Pricing cont’d

• One answer may be found in so-called international price corridors.

• These price corridors will work particularly well in regions with intensive economic
interaction, where market transparency is high and goods may flow freely across
borders (e.g. European Union).

• Figure 6.3 delineates how a price corridor may work

• An international price corridor may serve as a compromise between unprofitably low uniform
prices and country-specific differentiated prices
• The price corridor aims to render arbitrage unattractive.
• Arbitrage is defined as the difference between prices for the same product in different markets.
• Arbitrage will lead to grey markets or parallel imports, where traders take advantage of low
prices for a given product in one market and then sell the goods in markets with a high price
level.
• To assist companies faced with the task of international price setting, Figure 6.4 may 45
serve as a guideline for the international price setting process.
Figure 6.3 An international price corridor

46
Figure 6.4 A decision-making framework for international pricing

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THANK YOU!

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