Pricing your products or services appropriately can make or break your success in a new market. It’s one of the most critical aspects to consider as part of any international marketing strategy and affects everything from the perception of quality, to where your brand stacks up next to the competition, or even if your product is affordable in your selected market.
To set the right price, several different areas of expertise need to work together including finance, accounting, sourcing, legal, duties, insurance, and marketing to ensure all aspects are covered. But after all of the above is considered, there are additional constraints at play when your products or services cross international borders.
Understanding these seven main pricing constraints your business could face will ensure you set a pricing strategy that is competitive, legal, and most of all profitable.
1. Anti-dumping legislation
Dumping is when a producer sells goods in a foreign market at a price that is below the market price in both its home country and the foreign market. The World Trade Organization (WTO) allows countries to impose penalty tariffs called anti-dumping duties on unfairly priced imported goods resulting in injury to domestic producers. Anti-dumping duties raise the market price of the imported goods, offsetting any competitive advantage the unfair pricing might have brought. The United States and the European Community (EC) extensively penalize companies that offer what they deem to be unfairly priced imports through anti-dumping laws. Canadian companies frequently invoke domestic anti-dumping regulations, imposing anti-dumping duties on low-priced imports entering the Canadian market.
2. Resale-price-maintenance legislation
Resale-price-maintenance laws exist to ensure that the prices charged by affiliated companies for goods and services reflect their true value. This aspect of pricing receives a quite a bit of attention among exporters because of the income tax reduction effects of transfer pricing. Income can be understated through transfer pricing, either by charging too little for sales to affiliates or by paying too much for purchases from affiliated enterprises. As a result, pricing strategy is constrained by this type of price regulation and must be taken into account.
3. Price ceilings and price level reviews
Excessive price increases are often outlawed. Some countries use reviews and ceilings to protect the local economy from exorbitant price increases in times of wage and price controls. Both domestic and foreign businesses must comply with these controls, and therefore they must be considered in the international pricing strategy. When exporters fail to do this, the government of the host country will often take action to ensure that wage and price guidelines are followed and violators are penalized.
4. International transportation costs
Exporters also need to factor in the additional costs of international transportation and the customs, duties, and taxes associated with exporting. Exporters should be aware that the weight, volume, and packaging of their products will affect the cost of transportation.
5. Multinational account servicing
The international marketplace is a complicated thing to navigate. Exporters should add an extra layer of management to their team to ensure success in this complex environment. This person or team must have the competencies to manage the intricacies of working with international accounts.
6. Complicated international distribution channels
The more distribution channels companies have in their supply chain, the higher the cost of getting their product to market. Exporters should weigh the higher cost of various distribution channels against the potential increase in sales that may result from wider or more successful distribution of its products.
7. Pricing across borders
Pricing considerations for international markets take on additional complexities when border proximity also plays a factor. For example, consumers who are mobile within a certain geographic purchasing territory, and who can make purchases on either side of a border, will force companies to set pricing for both markets within an acceptable variance or risk losing sales in one market. Today’s consumer is more aware of price variances between competitors as well as between markets. Ecommerce plays an increasing role here as well. As consumers become more and more mobile, those pricing variances have a greater ability to affect the purchasing decision, or at the very least, where a purchase is made.
Learn more about international pricing and presenting your products successfully in a new market through the FITTskills International Marketing course from the Forum for International Trade Training. This international business training program and the related professional designation (CITP®|FIBP®) are the only ones recognized by the World Trade Centers Association and the Canadian government.