Expansion into international markets requires a revision to the pricing strategy. Pricing strategies are the ways in which businesses set prices for their products or services. It is one of the most relevant elements of the marketing mix
We will now explore the different pricing strategies. The three that we will explore are skimming pricing, penetration pricing, and Economy pricing. Price Skimming is the strategy where the price is set high then as competitors slowly increase their costs we lower them. Sony is notorious for doing this. The other strategy which is penetration pricing is when they enter the market by offering lower prices than competitors to gain customers then they slowly raise prices. The last Strategy is Economy pricing. This is a pricing strategy where products have lower prices due to lower production costs. This allows businesses to price their products according to their production value as they don’t acquire the extra cost of advertising or marketing. When creating a pricing strategy it is also very important to consider other factors that are inducing the pricing strategy.
Internal factors include the company’s marketing objectives, marketing mix strategy, costs, and organizational considerations. The external factors that influence the pricing decision are demand, competition, suppliers, economic conditions, buyers, and governments. Once these factors have been considered the next steps require developing the pricing strategy.
There are two essential steps in developing an international pricing strategy. First, Determine the optimal price in single countries and try to harmonize prices across countries in such a way that parallel trade is minimized, potential problems with pricing authorities are avoided and total profitability is maximized. There has to be a Complete analysis of the product’s perceived benefit in relation to the benefit of the competitor products, plus an estimation of the price elasticity of every single market under consideration. It is also important to ask a few questions which are: What value is delivered to the market in terms of both product and company performance and What value is extracted from the market, (how high is the price elasticity and what is the optimal price)? The problem associated with this is that value is perceived differently by different customer groups and different customer groups show different price elasticities. The second step is a move by companies to a more centralized pricing approach which involves an increasingly harmonized pricing strategy for the introduction of new products. This finally leads us to the Price Corridor.
Price Corridor helps find a compromise between the two extremes of trying to maintain price differentials and of changing a uniform price across all countries, it sets a minimum and maximum price. The minimum price is a hard lower limit, no country should be allowed to set a price below this. Some countries might not be able to launch the new product because they cannot establish the price needed.