The pricing decision is influenced by a number of variables. Costs, required rate of return, marketing and marketing mix priorities are all internal factors of the company. Others, such as market competition, consumers, demand and supply, environmental factors, and government policy are external factors of the business. Both of these considerations must be taken into account when developing a pricing plan and determining the best pricing decision. All of the above must be considered when making an international pricing decision, but when a company enters international markets, it often faces a number of different cultures, legal systems, traditions, geographical and climatic conditions, schooling, religions, wants, behaviors, beliefs, buying power, and pressures. Firms embark on a foreign undertaking in order to achieve a variety of goals based on both “pull” and “push” factors. International “pull” factors are those that entice a business to enter a foreign market and are focused on the attractiveness of that market. When a company is enticed by the pull factor, it goes out of its way to search out international markets. Companies compelled to expand internationally, on the other hand, are responding to internal or domestic market pressures. Companies consider a mix of several variables, both push and pull, in considering international expansion when formulating an international business strategy.
Reasons why firms venture overseas:
- Resource Availability: Resources such as labor could be significantly cheaper overseas, cheaper raw materials, or even a more ideal climate for the products. Apple is a good example of a company who ventured overseas for cheaper labor and materials.
- First mover advantage: Companies move overseas in an attempt to control the market before any competitors begin doing business.
- Economies of Scale: The at home market may be too small and exporting may be the only way to exploit economies of scale.
- Diversification: If a company is looking to reduce their dependence in a single market they would diversify and protect themselves from an isolated incident in a country.
Reasons why firms do not venture overseas:
- Foreign markets are difficult to enter
- Higher risk
- Many unfamiliarities such as laws, regulations, culture, and religion.
- Product modifications
- Exchange rate risk
The 7 C’s of International Pricing:
- Costs: A thorough understanding of all costs associated with providing the product, such as creation, creative, processing, delivery, storage, advertisement, and manpower. Costs rise as a result of international shipping and associated costs such as freight, insurance, and handling. Then there's the issue of taxes such as a VAT tax or local GST.
- Competitors: Comprehensive and up-to-date review of foreign rivals, including competitive goods, brands, and costs, as well as how your brand compares to those competitors.
- Customers: International customers will have a different view of value based on cultural and social differences.
- Cultural differences: The foreign pricing decision requires a thorough understanding of the culture of the overseas market, as well as the wants and needs of its residents, including their expectations of the importance of the brand and products, as well as the brands and products of competitors.
- Channels of distribution: Channels will have to be expanded and more hands will need to be exchanged to distribute a product.
- Currency rates: Exchange rates are vulnerable to fluctuations and this could pose a threat for any business.
- Control by government: Controls and regulations imposed by the government and bureaucracy can be tedious and complicated, as they are in China and even some European countries. Certain goods, such as pharmaceuticals, electricity, and food, are subject to price controls in some countries.