Page 148 - DMGT547_INTERNATIONAL_MARKETING

Unit 8: Pricing Decisions for International Markets

Self Assessment Notes

Fill in the blanks:
1. The three basic factors which determine the limits of pricing decisions of a firm are
product cost, the purchasing power of the consumers and .......................

2. ....................... represents the price floor beyond which prices cannot be dropped.
3. The ....................... conditions in the market are interpreted by an analysis of the competition.

8.2 Factors affecting International Pricing Strategies

Pricing strategy is an important part of fixing the international price. The price has to be
competitive and based on the quality of a product. Different pricing strategies are adopted in
different foreign countries because of certain environmental factors like political, economic,
socio-cultural, and legal and so on. Let us learn some more about international pricing, discussed
in following subsections.

8.2.1 Factors affecting Pricing Decisions

There are three main factors which affect the export price strategy to be adopted by the exporter
in the foreign markets, viz. the characteristics of the product and the nature of its demand, the
philosophy of its management and the market characteristics. The pricing strategy is a short-
term tool to make fit the prices in the changing competitive situations in the short run with its
pricing policy decisions.
1. Characteristics of the product and the nature of its demand: It is a major factor in fixing
the price of the product at a particular time. In other words, improvement in quality of the
product and product adaptation according to the changing competitive conditions in the
foreign market should be taken as a continuous process. Elasticity of demand is another
factor, which influences the price. If the demand of a product is inelastic, the price reduction
will not help to increase the revenue. In such a case, higher prices may be fixed taking in
view the competitive position in the market. If, on the other hand, product is highly
elastic, the sales revenue can be appreciably increased by slightly reducing the price. Thus,
pricing strategy, i.e. whether to fix higher price or lower price as compared to the competitor’s
prices very much depends upon the elasticity of demand and the competitive position.

2. The philosophy of the management: As we know that the main objective of management
of every concern is to maximize profits, this is an adverse relationship between the price
and the demand. The management can earn more profit at increased revenue by reducing
the price if the demand is more elastic. On the other hand, if the objective of the
management is to export a committed value of merchandise, the price may be even lower
than the marginal cost.

3. Market characteristics: Market characteristics such as number of competitors and degree
of competition, supply position, quality of the product, substitutes available in the market
etc. determines the pricing strategy of the firm. These market characteristics vary from
country to country.

Task Write a note on “P&G and its pricing policies”.

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