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Factors Influencing Pricing Strategy in

International Marketing
By Smriti Chand Marketing

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Some of the most important factors influencing pricing strategy in international marketing
are as follows:

Pricing decisions are complex in international marketing. A firm may have to follow different
pricing strategies in different markets. Whatever might be the strategy followed, pricing has to
reflect the proper value in the eyes of the consumer. Pricing is an important strategic and tactical
competitive weapon that can be used by a firm in international marketing.
Image Courtesy : ec.europa.eu/digital-agenda/sites/digital-agenda/files/Standarisation.jpg

It represents that element of the marketing mix, which is controllable by the firm to a large
extent. A firm should integrate pricing strategies with the other elements of the international
marketing mix.

Choice of a pricing strategy is dependent on:

1) Corporate goals and objectives

2) Customer characteristics

3) Intensity of inter-firm rivalry

4) Phase of the product life cycle

Having considered the factors influencing the choice of strategy, let us now turn specifically
to different strategies:

1) Skimming Strategies:

One of the most commonly discussed strategies is the skimming strategy. This strategy refers to
the firms desire to skim the market, by selling at a premium price. Skimming refers to the
objective of achieving highest possible contribution in a short time. To use this approach, the
product has to be unique and the target market should be willing to pay the high price. Success of
this strategy depends on the ability and speed of competitive reaction. A firm with a small market
share can face aggressive local competition when using skimming. Maintenance of high quality
requires lot of resources. If the product is sold cheaply at home, then the problems of gray
market can surface.

This strategy delivers results in the following situations:

i) When the target market associates quality of the product with its price, and high price is
perceived to mean high quality of the product.

ii) When the customer is aware and is willing to buy the product at a higher price just to be an
opinion leader.

iii) When the product is perceived as enhancing the customers status in society.

iv) When competition is non-existent or the threat from potential competition exists in the
industry because of low entry and exist barriers.

v) When the product represents significant technological breakthroughs and is perceived as a


high technology product.
In adopting the skimming strategy the firms objective is to achieve an early break-even point
and to maximize profits in a shorter time span or seek profits from a niche.

2) Penetration Pricing Strategies:

As opposed to the skimming strategy, the objective of penetration price strategy is to gain a
foothold in a highly competitive market. The objective of this strategy is market share or market
penetration. Here, the firm prices its product lower than the others do in competition. Penetration
pricing uses deliberate low prices to stimulate market growth and capture market share. It can be
useful when there is a mass market and price sensitive customers. Japanese companies
increasingly resort to penetrative pricing due to intense local competition.

This strategy delivers results in the following situations:

i) When the size of the market is large and it is a growing market.

ii) When customer loyalty is not high customers have been buying the existing brands more
because of habit rather than any specific preferences for it.

iii) When the market is characterized by intensive competition

iv) When the firm uses it as an entry strategy

v) Where price-quality association is weak.

3) Differential Pricing Strategies:

This strategy involves a firm differentiating its price across different market segments. The
assumption in this strategy is that different market segments do not communicate or have
different search costs and value perceptions of the product. In other words heterogeneity in the
market motivates a firm to adopt this strategy.

4) Geographic Pricing Strategies:

This strategy seeks to exploit economies of scale by pricing the product below the competitors
in one market and adopting a penetration strategy in the other. The former is termed as second
market discounting. This second market discounting is a part of the differential pricing strategy
where the firm either dumps or sells below its cost in the market to utilize its existing surplus
capacity. So, in geographic pricing strategy, a firm may charge a premium in one market,
penetration price in another market and a discounted price in the third.

5) Product Line Pricing Strategies:

These are a set of price strategies, which a multi-product firm can usefully adopt. An important
fact to be noted is that these products have to be related, in other words belonging to the same
product family. Faced with multi-products and fluctuating demand, the firm may adopt a
combination of the following strategies to effectively manage its product line or maximize its
profits across the product line.

i) Price Bundling:

This strategy is used by a firm to even out the demand for its product. This is useful strategy for
perishable; time-bound products like food, hotel room or a seat on a flight and for products
cannot be substituted, like the package of stereo music system. Off-season discounts and, season
tickets for music festivals are examples of price bundling strategy. This is a passive strategy
aimed at correctly bundling the prices of related items so that the firm is able to maximize its
profits.

ii) Premium Pricing:

This strategy is used by a firm that has heterogeneity of demand for substitute products with joint
economies of scale. Consider the example of a colour television set. There are different models
available with different features, like the one with a remote control and another without it. Both
are substitutable and satisfy the customer needs. But the firm may opt to premium price the first
model and position it as the top of the product line for high income or upper income group of
customers or for whom communicating that they have arrived is important,

iii) Image Pricing:

This strategy is used when consumers infer quality from the prices of substitute models or
competing products. The firm varies its prices over different brands of the same product line.
This strategy is commonly used in textiles, cosmetics, toilet soaps and perfumes.

iv) Complementary Pricing:

This strategy is used by a firm that has customers with high transaction costs for one or more of
its products. Transaction costs are all those costs that a customer has to incur to buy the product,
like the registration fees that a flat buyer has to pay in order to be a legal owner or the processing
fees that the bank may charge to give a credit card to the customer.

v) Captive Pricing Strategy:

Here a special price deal is offered to loyal customers or those who are regularly buying one of
the products of the firm. A typical example is the Gillette shaving system, which offers two twin
blades free with its razor to induce the buyer to purchase its blades. Kodak adopted this strategy,
when it offered a film roll free to all buyers who bought its camera. As may be observed this is a
strategy aimed at building customer loyalty.

vi) Loss Leader Strategy:

This is another example of complementary pricing strategy. This strategy involves dropping the
price on a well-known brand to generate demand or traffic at the retail outlet.
vii) Two-Part Pricing:

This strategy is used by products that can be divided into two distinct parts. For example,
membership of a video library has two parts one is the membership fee, which is annual and
the other is rent for each time frame for which a videocassette is rented. As may be observed the
price has two components, the fixed fees and the variables usage fees.