INTERNATIONAL

MARKETING:
Lecture 7

International pricing decisions

Gregor Pfajfar

March 2009
Different prices in different distribution
channels

in €
Source: Presentation Zinocker, Simon, Kucher & Partner, dec.2006.
Big mac index
Having trouble keeping track of currency
fluctuations?

The Economist tracks the average price of a

McDonald’s Big Mac across the globe to
give you a feel for whether a currency is
under- or over-valued.
The pivotal role of price in marketing
exchanges
CUSTOMER PRODUCER

Money Production
Time Promotion
Cognitive activity Distribution
Behavior effort Marketing research

+ +
Value Profit

= =
Price willing to pay Price willing to sell

Marketing exchange
Case study: Harley Davidson
1. Describe the HD’s general
pricing strategy. What does
the company’s positioning
have to do with its pricing
strategy?
2. Should Harley alter its price,
given the strong price
pressures from rivals?
3. What should HD do to
improve its market share in
Europe?
Strategic pricing decisions
Pricing
Only area of global marketing mix where policy can be changed
rapidly without large direct cost implications

Decisions in global markets are affected by complexity of

influential factors
 International pricing framework

Environmental
Firm-level factors
factors

Product factors Market factors

Other
Pricing strategies
elements

Terms
Firm performance

Source: Hollensen, Global marketing, 4e, 2008.

Internal factors affecting
international pricing decisions
• Firm-level factors • Product factors
• Corporate and • Stage in PLC
marketing objectives • Place in product line
• Competitive strategy • Most important
• Firm positioning product features
• Product development • Product positioning
• Production location • Product cost
• Market entry modes structure
External factors affecting
international pricing decisions
• Environmental • Market factors
factors • Customers’
• Government perceptions
influences and • Customers’ ability to
constraints pay
• Inflation • Nature of competition
• Currency fluctuations • Competitors’
• Business cycle stage objectives, strategies,
strengths and
weaknesses
• Grey market appeal
International price corridor

Source: Hollensen, Global marketing, 4e, 2008.

Special issues in international pricing

• Price escalation • What influences

• Skimming the height of
• Market pricing international
• Penetration pricing prices?
• Currency
• Experience curve
pricing • International
commercial terms
• Bundle pricing
• Financial terms
• Transfer pricing
• Terms of payment
Delivery terms – INCOTERMS 2000

1. E group: EXW (Ex-works)

seller buyer

transfer of costs and risk

2. F group: FCA (Free carrier), FAS (Free

alongside ship), FOB (Free on board)
seller buyer

transfer of costs and risk

Delivery terms – INCOTERMS 2000
3. C group: CFR (Cost and freight), CIF (Cost, insurance, and
freight), CPT (Carriage paid to), CIP (Carriage and insurance
paid to)
seller buyer

transfer of costs
transfer of risk

4. D group: DAF (Delivered at frontier), DES (Delivered ex-

ship), DEQ (Delivered ex-quay), DDU (Delivered duty
unpaid), DDP (Delivered duty paid)

seller buyer

transfer of costs and risk

Different terms of payment

Source: Hollensen, Global marketing, 4e, 2008.

The process for handling letters of credit

Source: Hollensen, Global marketing, 4e, 2008.

Export financing
• Commercial banks • Leasing
• Export credit • Counter-trade
insurance • Barter
• Factoring • Compensation
deal
• Forfeiting
• Buy-back
• Bonding agreement
Strategic alternatives in international
pricing

1. Standardization 1. Skimming
2. Differentiation 2. Penetration
Structural factors of standardized versus
differentiated pricing

Source: Hollensen, Global marketing, 4e, 2008.

Case study: Gillette
1. Evaluate the price-level of Gillette’s Fusion
2. Discuss whether it is possible for Gillette to standardize
pricing across borders for their new 5-blade, Fusion.
3. Which factors would favour price standardization and which
factors would favour price differentiation?
 A taxonomy of international pricing practices

High
internationalization

3 Multilocal 4 Global
Preparedness for

price setter price leader

1 Local 2 Global
price follower price follower

Low
Multilocal markets Global markets
Industry globalism

Source: Hollensen, Global marketing, 4e, 2008.

Initiating and responding to price
changes
• Initiating price cuts implies the • Reactions to competitors’
risk of… price changes
• Low quality trap • Maintain price
• Fragile market share trap • Maintain price and add
• Shallow pocket trap value
• Reduce price
• Initiating price increases
• Increase price and
• Cost inflation
improve quality
• Anticipatory pricing
• Launch a low-price
• Overdemand
fighter line
• Delayed quotation pricing
• Escalator clauses
• Unbundling
• Reduction of discounts
How to fight a price war?
NONPRICE RESPONSES
Reveal your strategic Offer to match competitors’ prices, offer everyday low
capabilities and intentions pricing, or reveal your cost advantage.

Compete on quality Increase product differentiation by adding features to a

product, or build awareness of existing features and their
benefits. Emphasize the performance risks in low-priced
options.

Co-opt contributors Form strategic partnerships by offering cooperative or

exclusive deals with suppliers, resellers, or providers of
related services.

PRICE RESPONSES
Use complex price actions Offer bundled prices, two-part pricing, quantity discounts,
price promotions, or loyalty programs for products.
Introduce new products Introduce flanking brands that compete in customer
segments that are being challenged by competitors.
Deploy simple price actions Adjust the product’s regular price in response to a
competitor’s price change or another potential entry into
the market.

Source: Rao, Bergen, Davis (2000). How to fight a price war, Harvard business review, pp. 107-116.