Pricing for Global Markets
Pricing is an important part of the global business strategies. However, it is very difficult in the international scenario, with various factors like multiple currencies, additional costs, larger and complex distribution network, trade barriers and heterogeneity in the markets.
Effective pricing has an impact on the value perceived by the customer. It also has an indirect impact on the promotional strategy, and can make up for some other deficiencies in the marketing mix.
It is essential for the managers to pay a lot of attention while developing pricing policies. Apart from the production costs and supply-demand analysis, they must consider other factors like insurance costs, fluctuations in the exchange rates etc. The major factors which influence pricing decision are:
- Type of industry/nature of product – A product which is new to the market and has little or no competition can be priced high. However, as the competition increases or the technological advantage decreases, the company should look at effective pricing strategies depending on the market segments being targeted.
- Location – A company having manufacturing units abroad often has relative advantage over companies which are situated in their home countries and always deal with exports. This is because some changes in the economic policies of the home country may severely affect the export business.
- Distribution channel – An exporter having own subsidiaries outside for distribution has a greater say on pricing decisions compared to those who bank on independent distributors. Independent distributors tend to mark up prices significantly. This problem can be minimized by reducing the number of intermediaries between the company and the end consumer, by setting up own subsidiaries in the overseas market.
- Foreign market – External environmental factors contribute to the complexity in pricing.
- Foreign currency differentials – Several economic factors like inflation, price control and exchange rates affect pricing decisions.
Many firms follow central pricing because it helps in maintaining uniformity in terms of price. This, in turn, prevents unauthorized imports from cheaper countries to sell in expensive markets. A firm faces almost same competitors in different markets in the global arena. Thus, a fragmented strategy might not be very effective. Centralized pricing also leads to better forecasts and to plan volume of production effectively. This is also necessary to create uniformity when the company aims to market its ‘global’ products across homogenous markets that are spread across various countries. These are markets which may differ in terms of geographical presence, but have similar market segments and customer requirements. However, a company encourages decentralized pricing on some occasions. It is necessary to give the freedom to subsidiaries or distributors to alter pricing policies when there is sudden need for change as a result of external factors. For instance, the company may have to follow the market trend if there are several players in the region. The authority of altering prices should be given to ensure that the company does not lose its market share due to a delay in implementing changes. They may also have to make changes when dealing with a market where most or all of the customers belong to a low income group. It is essential that pricing responds to the local needs.