PRICING FOR

INTERNATIONAL
MARKETS

AB 18 - INTERNATIONAL
TOPICS
Basic Pricing Concepts.
Framework for International Pricing Strategy.
Dumping and Countertrade.
INTRODUCTION
International pricing is the art and
science of determining the optimal
product cost across the foreign market.
As companies venture beyond domestic
market borders, they encounter varied
economic conditions, cultural nuances,
regulatory environments, and
competitive landscapes, all of which
influence pricing decisions.
Basic Pricing Concepts
Environmental considerations when making pricing decisions
1. Currency fluctuations - refer to the constant changes in the value of one currency
relative to another, impacting international trade, investments, and overall
economic stability.
Impact on international trade:
Exports: A weaker currency makes a country's exports cheaper for foreign
buyers, potentially boosting sales.
Imports: A stronger currency makes imports cheaper, potentially reducing
inflationary pressure.
Example: If the Philippine Peso (PHP) weakens against the US Dollar (USD), it
means that it takes more pesos to buy one dollar. This can make imports from the
US more expensive for Filipinos, but also make Philippine goods cheaper for US
buyers.
Basic Pricing Concepts cont….
2. Exchange Rate Clauses - 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 and
exchange risk must be addressed.
Example:
"All payments to be made under this Agreement will be made in US Dollars. When conversion of
payments from any foreign currency is required, such conversion will be at an exchange rate equal
to the average of the daily rates of exchange for the currency of the country from which such
payments are payable as published by The Wall Street Journal, Western U.S. Edition during the
quarter for which a payment is due.“
This clause specifies that all payments are to be made in US dollars and outlines
how to convert from other currencies, using a specific source and a specific
time period for the exchange rate calculation.
Basic Pricing Concepts cont….

3. Pricing in an Inflationary Environment - Inflation, or a persistent upward change in price

levels, is a worldwide 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
Basic Pricing Concepts cont….
4. 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.

Government Controls:

Price Controls:

Price Ceilings: Maximum prices set by the government, potentially leading to shortages if set below the market
equilibrium.

Price Floors: Minimum prices set by the government, potentially leading to surpluses if set above the market
equilibrium.

Government Subsidies:

Agricultural Subsidies: Financial aid to farmers to increase domestic food production.

Education Subsidies: Government funding for public education or student loans.

Healthcare Subsidies: Government programs to make healthcare more affordable.

Basic Pricing Concepts cont….

5. Competitive Behavior - Pricing decisions are bounded not only by cost and the nature of
demand but also by competitive action. 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 lowermost country, it may be necessary to cut prices to stay
competitive.
Basic Pricing Concepts cont….
6. Price and Quality Relationships - refers to the correlation between the price of a product and
its perceived quality by customers. In general, customers often associate higher price points with higher
quality, assuming that a more expensive product is of better quality than a cheaper one.
Three types of valuable product features

Identifying and measuring your value-enhancing attributes is the most significant hurdle in
value-based pricing. However, we have identified three types of features that determine the
value of a product:

1. Hygiene factors, which must be present for customers to even consider buying the product

2. Preference drivers, which determine whether a customer will buy a particular product over
another

3. Value drivers, which compel customers to pay a higher price for a product
Framework for International
Pricing Strategy
Different Pricing Strategy:
1. Cost-plus pricing- This strategy considers all direct and indirect costs associated
with the product or service for sale. To determine the price, calculate the cost price of
your product or service and add a set percentage, i.e., the profit margin. This method
is called cost-plus pricing.
2. Competitive pricing - This strategy involves constantly adjusting prices to adapt to
the competition’s. Eric Dolansky says, “If I’m selling a product that’s similar to
others, like peanut butter or shampoo, part of my job is making sure I know what the
competitors are doing, price-wise, and making any necessary adjustments.”.
3. Price skimming - Businesses adopt this strategy when launching innovative
products with no competition. They set a high price to start, then gradually lower it.
For example, your business is launching a new kind of TV. You set a high price to
take advantage of the market of tech enthusiasts called early adopters. The high price
also allows your business to recover some development costs.
Framework for International Pricing
Strategy
Different Pricing Strategy:
4. Penetration pricing - This strategy is used in a market where many similar products and
services are offered and customers are price-sensitive.
“Penetration pricing makes sense when you’re setting a lower price early on to quickly attract a
significant number of customers,” says Eric Dolansky.
This way, you’re setting a much lower price to help your product stand out. You can
encourage customers to switch brands and create a demand for your product. Consequently,
increasing sales volume may lead to economies of scale and reduce your cost per unit.
5. Value-based pricing - is a strategy where prices are set based on the perceived value of a
product or service to the customer, rather than production costs or competitor pricing. It focuses
on what customers are willing to pay for the benefits and solutions offered.
Examples:
A fine dining restaurant might charge a higher price because customers perceive the experience
and quality of the food to be worth it.
A famous painting might command a high price due to its cultural significance and the perceived
value to the buyer.
Dumping and Countertrade
Dumping - is a situation of international price discrimination, where the price of a
product when sold in the importing country is less than the price of that product in the
market of the exporting country. Dumping is defined in the Agreement on
Implementation of Article VI of the GATT 1994 (The Anti-Dumping Agreement) as the
introduction of a product into the commerce of another country at less than its normal
value. Under Article VI of GATT 1994, and the Anti-Dumping Agreement, WTO Members
can impose anti-dumping measures, if, after investigation in accordance with the
Agreement, a determination is made
(a) that dumping is occurring,
(b) that the domestic industry producing the like product in the importing country is
suffering material injury, and
(c) that there is a causal link between the two. In addition to substantive rules
governing the determination of dumping, injury, and causal link, the Agreement sets
forth detailed procedural rules for the initiation and conduct of investigations, the
imposition of measures, and the duration and review of measures.
Dumping and Countertrade
Countertrade - a common practice in international trade, involves exchanging goods or services for other
goods or services rather than currency, often used when countries have limited foreign exchange or face trade
imbalances.
Purpose: It's a mechanism to facilitate trade when countries have limited access to
hard currency or when other types of market trade are difficult or impossible.
Types of Countertrade:
Barter: The simplest form, involving a direct exchange of goods or services.
Counter-purchase: The exporter agrees to purchase a certain amount of goods or services
from the importing country as a condition of the sale.
Switch Trading: A third party facilitates the countertrade transaction, buying the goods from
the exporter and selling them to the importer.
Buyback: The exporter agrees to take back a portion of the goods or services that it has sold
to the importing country.
Offset: The exporter agrees to invest in the importing country's economy, such as by
establishing a factory or training local workers.
THANK
YOU!!!