Pricing

Pricing has been relatively neglected in terms of academic marketing research. This has been noted by Rao (1984) while Cavusgil (1988) stated that the neglect of international pricing was even more acute. Clark et al. (1999) comment on its continued neglect over the previous 25 years. Pricing is not simply an economic decision, it can also be seen as a marketing tactic, through the use of discounts, special offers and various incentives. It is an important decision for any business because, quite simply, it generates revenue for the business.

In the domestic market, basic pricing strategies may include cost orientated pricing, where a fixed amount or percentage is added on to the cost of the product, for example, cost-plus pricing or mark-up pricing. Demand may also be used to set prices; thus the price is high when demand is strong and lower when demand is weak. Alternatively pricing could be based on the strategies adopted by competitors, and the company will price above, below or at the same level as a competitor. From a marketing perspective, the pricing strategy could be marketing-led. Thus, market-orientated pricing takes into account a wide range of factors, which makes it more complicated than cost-orientated or competition orientated pricing. These factors include the marketing strategy; competition; value to the customer; price-quality relationships; costs; product line pricing; negotiated margins; and the effect of intermediaries and political factors.

In setting a price for international markets companies have to take into account a variety of company and market factors (Figure 7.1). The company is exposed to additional cost, for example, in additional packaging costs which may not be required in the domestic market, and difficulties can arise in the international market as a result of inflation, volatile exchange rates, the activities of gray marketers and difficulties in transfer pricing (see Box 7.5). Additional costs can be generated via transportation costs, warehousing, insurance, tariffs and taxes, legal costs and the cost of employing staff dedicated to the exporting activity. Political factors too can affect the pricing strategies of companies, due to governmental influence on the wider marketing environment via antidumping legislation, tariffs, lack of 'hard currency' and government intervention in currency markets.

BOX 7.5: TRANSFER PRICING EXPLAINED

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Market Factors

• Customers needs/wants, ability to pay

• Need for adaptation, market servicing

• Market structure, distribution channels

• Competitive pressure ® Is the market growing, mature or declining?

• Activities of gray marketers

Environmental Factors

Market Factors

Environmental Factors

Stage in the business

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