When creating a global pricing strategy, there are many difficulties that occur that do not occur with domestic pricing. In this week’s blog we will overview a few of the difficulties as well as their effect on the global company due to global pricing.
First, a global pricing strategy may have difficulties when there is fluctuation of the international currency of the country that they operate in. The appreciation or depreciation of domestic currency due to exchange rates in the foreign market make the financial forecasts of the company much more difficult to predict as well as increase the associated risk of the venture as a whole. The exchange rates may also inhibit exports to the countries with a poor exchange rate due to the immediate decrease in value for the good. This affects overall revenue, as pricing is less fixed globally than it is domestically.
Second, the company may have to increase their prices due to the tariffs associated with their export good. This added costs, the tariff, forces the company to have a reduction in profit for the good if there is not an increase in the price. The company is forced to increase the price to make up the difference in the loss from the tax and try to recover lost revenue.
Third, the access to credit, although decreasing, is still a problem. Companies are having a difficult time gaining credit in foreign companies to invest further capital into their companies. This is especially true in the BRIC companies as they are less developed than other countries. Companies, in turn, have to increase prices to be able to invest into the company.
Fourth, regulation and compliance with the international laws create difficulties for the company to establish prices. A company penetrating a foreign market needs to ensure that they are meeting the local regulations in pricing as well as ensure that they are knowledgeable in the local laws in pricing. An example of this would be the anti-dumping laws that many countries employ. Many countries do not allow such aggressive pricing strategies.
Lastly, there seems to be a lot of pressure in developing the pricing strategy based on slow economic growth, recessions, public pressure, and political pressure. With all these factors combined, the ability to successfully meet the requirements and needs of all parties involved while also setting the price at a point that makes a profit is very difficult. The slow economy and maturing markets in many international countries create an added importance on pricing in the market as demand is either slowing or declining. To make a profit, the company needs to ensure that they are setting the price low enough that it avoids disruption in the target market.
While these are not all of the difficulties in the global market based on pricing, these are some of the most important. Domestically, there are fewer barriers to setting prices. For a company that is expanding globally, many more things have to be taken into consideration when given the task of setting a price.