Strategy of pricing in international business, Features...

Pricing strategy in international business

The importance of objectively conditioned pricing in the current conditions of economic globalization and international competition can not be overemphasized, since the ability of companies to control prices and use them as an instrument in competition is the most important indicator of their competitiveness and economic stability. Although pricing, as it follows from the foregoing, is one of the most important management functions, it still remains insufficiently understandable and least manageable in many companies that are quite effective in other respects. Meanwhile, pricing is an extremely sensitive lever of the impact on profit: very small changes in the average price can lead to huge changes in the company's operating profit.

The complexity of an effective solution to the problem of pricing is, first of all, a huge number of pricing factors, the main ones of which will be considered within the framework of this chapter of the textbook.

Key terms:

the main pricing factors; penetration strategy; strategy of exhaustion; price differentiation strategy; price leadership model; barometric price leadership; price leadership of the dominant company; model of price discrimination; transfer pricing; regulation of transfer prices.

Features of pricing in the world market

Pricing is a topic that has been studied for a long time in economic theory and in practice because of the special role of the price it plays in the process of accumulating the resources of the enterprise (Figure 21.1).

Among the economic categories used in the market mechanism of management, price is the most important place. The price of goods determines the efficiency of the firm, its viability and financial stability.

Correct pricing policy of a company (enterprise), consisting in the establishment of prices for goods and services depending on the emerging market conditions, providing the intended profit volume and solving other strategic tasks, is a necessary condition for any commercial enterprise in tough market conditions.

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The most obvious goal of pricing is to earn a profit . To realize this goal, the price of the product must be high enough to cover all the costs necessary for the production and sale of the goods and, Moreover, to ensure the receipt of the necessary amount of profit.

At the same time, no entrepreneur will start his business unless he is sure that consumers will normally perceive the price of a product that will cover the costs of its production and provide it with the necessary profit.

Another most common goal of pricing is sales growth . Firms that are central

Price and results of enterprise activity

Fig. 21.1 . Price and performance of the enterprise

the moment of pricing make sales growth, of course, do not refuse and the profit. It is in pursuit of the goal of generating greater profits in the future (by capturing most of the market today), these firms are also going to reduce prices for their goods. Which of these commercial strategies to choose, the case of a particular entrepreneur.

The right price decision must take into account a number of factors that affect the price. The most important of them are demand, costs, competition. In addition, it is necessary to take into account existing legislative restrictions in the country.

Of course, demand factor is decisive. When demand grows, a firm can raise the price of its goods, which will ensure a corresponding increase in profits, and, conversely, with a decrease in demand the firm will have to lower prices if it wants to keep the total number of sales at the same level.

It is also easy to see that the price level is largely determined by the cost of manufacturing the goods. Costs determine, in essence, the minimum price that an entrepreneur can go into when faced with competition or overstocking. With the growth of unit costs, the firm usually tries to raise the price, although this leads to a decrease in sales. At the same time, any reduction in unit costs gives the company the opportunity to reduce the price, increase sales and get more profit.

Competition sets a price limit for the company's products. The more competitors the firm has, the more likely it is that it will lose its customers if it raises the price. But the firm will also be forced to reduce the price of its products, if it is done by its competitors.

Solving the problem of pricing, the entrepreneur must constantly remember the existence of measures of state regulation of the price level and their dynamics. In one case, the enterprise's products may be among those products whose production is subsidized by the state, in another - the state limitation of the price level can lead to a reduction in the possible profit of the enterprise and even create a threat of ruin.

The process of justifying the price of enterprise products includes, as a rule, the following main stages: elaboration (clarification) of the price policy; definition (analysis) of demand; an estimation of production costs; the analysis of the prices of competitors; choice of pricing method; setting the final price.

The formation of prices in the world market - the process is incomparably more complicated than on the domestic one, as it is connected with a variety of additional factors. Each country uses its own optimal price criteria, which is affected by the cost price, purchasing power, the social significance of the product (service), the price-quality ratio, the image of the product, etc. Due to this, the modern international economy is characterized by the plurality of prices, due to the following main factors:

- tariff (and non-tariff) barriers;

- trade-economic, currency and geographical areas

- the policy of associations of exporters of those or other goods;

- prices of exchanges, auctions and other centers of international trade;

- offers on the prices of leading firms that produce and export specific goods;

- cyclical fluctuations in the world economy, leading to cyclical price fluctuations and reflecting the corresponding shifts in the conjuncture of commodity markets;

- fluctuations in exchange rates;

- inflationary processes.

The diversity and multiplicity of foreign trade prices make it difficult to select and determine the level of the world price, which, according to many experts, must meet the following requirements:

- the price should represent a significant share of world trade turnover, and large commercial transactions should be carried out on it;

- information about the price should be available for any participant in international trade turnover;

- the world price should be determined in freely convertible currency;

- world prices are the prices of goods in the most important centers of international trade, where foreign trade transactions are regularly carried out.

In practice, as the world prices, export or import prices of the main suppliers and buyers of the corresponding goods are used. In principle, in the international commodity exchange, as well as in domestic trade, the final leveling of prices and, consequently, the formation of the final price for any commodity are carried out with the buyer's orientation. Therefore, in order to assess the acceptability of the price level and its representativeness, it is necessary to use the price of the largest importers of the commodity in question.

However, for some products, primarily machines and equipment, data on prices of the main exporters are used as information on world prices. Information on the prices of suppliers of finished industrial products is more regular than information on the prices of consumers of these products, as suppliers are interested in advertising and popularizing their products. In addition, the difference in the levels of producer and consumer prices of finished industrial products is not significant due to the relatively small proportion of the transport component. Of particular importance is the fact that the "scatter" prices of consumers of finished industrial products may be greater than those of producers, since importers assess its quality in different ways, and also experience an unequal need for purchased goods.

For some (mostly mass) goods world prices can be considered the prices of the largest trading centers: exchanges, auctions, trades.

■ World base prices - these are the prices of the most important exporters or importers or the prices of major centers of world trade related to regular, large, regular, separate operations carried out in an open trade and political regime with payment in freely convertible currency.

thematic pictures

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