Page 149 - DMGT547_INTERNATIONAL_MARKETING

International Marketing

Notes Self Assessment

Fill in the blanks:
4. The pricing strategy is a .............................. tool to make fit the prices in the changing
competitive situations in the short run with its pricing policy decisions.

5. If the demand for a product is……………………, then even the reductions in prices will not
lead to increase in revenue.

8.3 Pricing Approaches

The export price quotations may not be the same for all markets. Prices may differ from market
to market due to various reasons viz. political influence, buying capacity, financial and import
facilities, total market turnover and other pricing and non-pricing factors etc. in order to make
the local price of the product competitive. The profitability will also be affected to a great extent
and may be different in different markets. However, there is nothing wrong in making higher
margin in small export markets and lower ones in others provided there is an overall profit in
export business.
Thus, different strategies may be used in different markets. In some markets prices may be
higher in some others they may be cost price or in many others; they may be less than the cost
price. Normally, the following pricing strategies are used in the export market:
1. Market Penetration Strategy: Under this strategy, exporters offer a very low introductory
price to speed up their sales and, therefore, widening the market base. It aims at capturing
the products in the market especially if the quality of the product is proved with its wide
acceptance.
2. Probe Pricing Strategy: Fixing low price for its product may have an adverse effect on the
image of the firm and of the product. It may raise doubts in the minds of the buyers about
the quality of the product if it is lower than the price of competitors or if it is reduced
subsequently. When no information is available on the extent of the competition or the
likely preferences of the buyers, sufficiently higher prices may be quoted on the first few
offers. No business is really expected to grow except feed back information. Hence, the
prices may be adjusted accordingly.
3. Follow the Leader Pricing Strategy: In a competitive world market or where adequate
market information is not available, it may be useful to follow the leader in the market
comparing its product with that of the leader the exporter may then fix the price of its
product. In such cases the price of the product is lower than the leader’s product. However,
this price has no rational or scientific base for fixing the price.
4. Skimming Pricing Strategy: Under this strategy, a very high introductory price is fixed to
skim the cream of the demand at the very outset. This policy is generally introduced when
there is no competition in the market. Such prices continue to be high till competitors
enter the foreign market. As soon as competitors enter the market, the exporter reduces
the price.

5. Differential Trade Margins Strategy: Variation in trade margins may be adopted by the
exporter as the pricing strategy in foreign market. This strategy allows various types of
discounts on the list price. Quantity discounts encourage procuring huge orders. It may be
based on the value or on the quantity purchased or on the size of the package purchase.
Special discounts may be allowed while introducing the product. These are given on all
the purchases. Seasonal discount aims at shifting the storing function in the channels. This
approach is ‘buy sooner or more’. Cash discount attracts prompt payment. It ensures

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