week 8

Key managerial issues in international pricing  Managing price escalation  Pricing in inflationary environments  Global pricing, currency fluctuations, and tari ff s  Price coordination Pricing in inflationary environments Rampant inflation is a major obstacle to doing business in many countries. Moreover, high- inflation rates are usually coupled with volatile exchange rate movements. Companies can resort to several ways to safeguard themselves against inflation : 1) Modify components, ingredients, parts, and/or packaging materials ( some ingredients are subject to lower inflation rate than others. 2) Source materials from low-cost suppliers . (If feasible, materials could be imported from low-inflation countries). 3) Shorten credit terms . ( in some cases, profits can be realized by juggling the terms of payment) 4) Include escalator clauses in long-term contracts . Many business-to-business marketing situations involve long-term contracts. 5) Quote prices in a stable currency. To handle high inflation, companies often quote prices in a stable currency such as the US dollar or euros. 6) Pursue rapid inventory turnover 7) Draw lessons from other countries Compagnies faced with price controls can consider several actions courses : 1° Adapt the product line . ( to reduce exposure to a gov-imposed price freeze, companies diversity into product lines that are relatively free of price controls) 2° Shift target segments or markets . A more drastic move is to shift the firm’s target segment. 3° Launch new products or variants of existing products 4° negotiate with the government 5° Predict incidence of price controls. Global pricing, currency fluctuations, and tari ff s Currency Gain / Loss Pass Through Two major managerial pricing issues result from currency movements. 1) How much of any exchange rate gain ( loss) should be passed through to our customers ? 2) In what currency should we quote our prices ?