International Pricing Factors
Falling trade barriers between national markets, the rise of newly industrialized countries and technological changes have influenced the structure of international markets and posed new challenges for the international business environment. The fundamentals of competition in many markets are changing so much that the options for survival with purely internal strategies become limited.
The world is a global village now and businesses need pricing strategies that meet international ambitions.
The goal of an international marketing strategy is to align an organization with its environment. Pricing is one of the most important elements of the marketing mix. Price is defined as the amount of money required to purchase a product or service. Typically, this should reflect the cost of producing the product, the cost of providing any necessary or additional services, the revenue for the firm, and the quality of the product. But when entering the international level, it is necessary to take into account the peculiarities of the market of the country where the sale of goods is planned.
Let's take a look at the most important factors in international pricing:
Differences in government laws and regulations are some of the main factors influencing companies' pricing decisions in different markets. For example, in many countries there is a common law that directly affects pricing - retail price support, which requires firms to sell certain products at certain prices.
The purpose of such laws is either to protect consumers from unfair exploitation, or to provide easy access to certain products (such as pharmaceuticals) for almost all segments of the population.
The overall level of economic and industrial development of the country determines the priorities of the clients. Priorities, in terms of the products they feel are necessary or desirable, in addition to the prices they can afford and are willing to pay for certain products. For example, a product that is considered important in a developed country may be considered less needed or even a luxury item in a less developed country. Moreover, the demand for a product at different price levels is a function of the purchasing power of target customers, determined by the level of economic development of the country.
STRUCTURE OF COMPETITION
It is important to carefully assess competitors' pricing policies before setting prices in international markets. The level of competition in the market is often highly dependent on the stage of the product life cycle in different countries.
INFLATION AND EXCHANGE RATES
Inflation is an increase in the average price level in a country, which, in turn, reduces the purchasing power of money. Firms need to adjust prices to different inflation rates to counteract this effect. However, in countries with high inflation, price adjustment is often hampered by national price checks, with the result that target rates of return may not be met.
TARGETED CLIENTS BEHAVIOR
Consumer behavior due to cultural differences also influences the pricing strategy that a company must follow. For example, in Japanese culture, the perceived value of a product directly influences its success in the market. High quality significantly exceeds the real value of the product, since quality is culturally associated with high prices. This is evidenced by the dominance of Mercedes and BMW in the foreign car import market.
The Johnny Walker whiskey sold in Japan represents high status. To gain market share from its main competitor, Chivas, Johnny Walker cut the price. Japanese consumers perceived the price cut as a deterioration in quality and status, leading to a sharp drop in sales.
In addition to external factors, of course, there are internal factors that influence the company's international pricing policy. These factors are more or less determined by the company following their internal premises. However, it should be noted that because pricing strategies are complex and different details must be taken into account, individual factors influence each other and cannot be completely separated for optimal results.