International Pricing

Companies that market their products internationally must deeide what prices to charge in the different countries in which they operate. In some cases, a company can set a uniform worldwide price. For example, Airbus sells its jetliners at about the same price everywhere, whether in the United States, Europe or a Third World country. However, most companies adjust their prices to reflect local market conditions and cost considerations.

The price that a company should charge in a .specific country depends on many factors, including economic conditions, competitive situations, laws and regulations, and development of the wholesaling and retailing system. Consumer perceptions and preferences may also vary from country to country, calling for

International price escalation: a pair ofLevi's selling/or S30 in the United States goes for over £60 in a Levi's boutique in Korea and other Pacific Rim countries.

different prices. Or the company may have different marketing objectives iii various world markets, which require changes in pricing strategy. For example, Sony might introduce a new product into mature markets in highly developed countries with the goal of quickly gaining mass-market share — this would call for a penetration pricing strategy. In contrast, it might enter a less developed market by targeting smaller, less price-sensitive segments - in this case, market-skimming pricing makes sense.

Costs play an important role in setting international prices. Travellers abroad are often surprised to find that goods which are relatively inexpensive at home may carry outrageously higher price tags in other countries. A pair of Levi's selling for 830 in the United States goes for about $M in Tokyo and 888 in Paris. A McDonald's Big Mac selling for a modest S2.25 in the United States costs $5.75 in Moscow. Pink Floyd's 'Dark Side of the Moon' CD sells for $14.99 in the United States, but costs about 822 in the EU. Conversely, a (hied handbag going for only $60 in Milan, Italy, fetches 0240 in the United States. In some cases, such price escalation may result from differences in selling strategies or market conditions. In most instances, however, it is simply a result of the higher costs of selling in foreign markets - the additional costs of modifying the product, higher shipping and insurance costs, import tariffs and taxes, costs associated with exchange-rate fluctuations and higher channel and physical distribution costs.

For example, Campbell found that its distribution costs in the United Kingdom were 30 per cent higher than in the United States. US retailers typically purchase soup in large quantities - 48-can cases of a single soup by the dozens, hundred or carloads. In contrast. English grocers purchase; soup iu small quantities - typically in 24-can cases of assorted soups. Each case must be hand-packed for shipment. To handle these small orders, Campbell had to add a costly extra wholesale level to its European channel. The smaller orders also mean that English retailers order two or three times as often as their US counterparts, bumping up billing and order costs. These and other factors caused Campbell to charge much higher prices for its soups in the UK.1-1

Thus international pricing presents some special problems and complexities. We discussed international pricing issues in more detail in Chapter 5.

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