What are the factors influencing selection of Distribution Channel in International Marketing?

MEANING

Price is an important element of marketing-mix. Price is the exchange Value. Developing a right pricing strategy is critical to an organisation’s success. Price is a significant variable, as in many cases; it is the main factor affecting consumer choice. Its significance is further emphasized as it is the only element of marketing mix that generates revenues and the others produce costs.

FACTORS DETERMINING EXPORT PRICING

Pricing of a product depends upon several factors. A marketer must consider certain factors before finalizing the prices. The factors affecting pricing can be broadly divided into two groups, as shown below:

I.       INTERNAL FACTORS:

1.      Costs: A firm while fixing prices should consider the costs for producing the product. In case of several products, costs constitute a large part of the price. The firm must plan to recover both the variable costs and the fixed costs. However, a firm selling bulk of its supplies in the home market, and a part of production in the overseas market, then all the fixed costs may be recovered from the home market, and only Variable costs may be charged for the overseas markets.

2.      Objectives of the Firm: The marketer must consider the objectives of the firm, while fixing prices. Price of products is directly related to objectives of the firm. For instance, if the objective of a firm is to increase return on investment, then it may charge a higher price, and if the objective is to capture a large market share, then it may charge a lower price.

3.      Product: The product plays an important role in fixing price. If a product is of superior quality, then a firm may either adopt premium strategy or high value strategy. In premium pricing, the firm would charge high price for high quality, and in the case of high value pricing, the firm would charge moderate price for high quality. There are also firms that adopt super value strategy, where a high quality product is sold at low price, as in the case of Parle-G, and other brands by Parle Biscuits.

4.      Image of the Firm: The firms enjoying a good image in the market may charge a higher price, as compared to those firms which do not enjoy reputation in the market. This is because; consumers have trust and confidence in the firms enjoying name and reputation in the market. For instance, firms like P&G, and HLL, can command a higher price for their brands, as they enjoy goodwill in the market.

5.      Promotional Activities: Pricing is related to promotional activities. If a firm undertakes heavy advertising and sales promotion, then price planning must ensure that these promotional costs will be recovered, at least in the long term.. It is often observed that highly advertised or promoted brands command high price as compared to lowly promoted brands.

6.      Product Life Cycle: The stage of a products life cycle affects pricing. For instance, when a firm introduces a product in a competitive market, then it may charge a lower price to attract the customers. During the growth stage, a firm may increase the price, especially in a low competition market.

The marketer may also consider the probable length of the product’s life cycle. If the probable length of the product’s life is expected to be long, then lower price may be charged, as compared to the products with shorter life span.

II.      EXTERNAL FACTORS

7.      Competition: The marketer has to consider the degree of competition in the market. When there is high competition, prices may be lower, and vice-versa. The price of competing brands, as well as those of substitutes must be considered while fixing prices. Normally, the price must be within the range of that of the competitors.

8.      Demand: Price of goods to a great extent depends upon demand. For instance, an increase in demand may lead to an increase in price, even though there may be no rise in costs. Demand may increase due to economic conditions in the market, problems with the supplies of competitors, and so on. It is to be noted, that increase in demand need not result in increase in prices, as nowadays, socially responsible marketers pass on a part of the benefits of large-scale production and distribution to the consumers.

9.      Consumers: The marketer should consider various consumer factors while fixing prices. The consumer factors that must be considered include the price sensitiveness of buyers, purchasing power, buying pattern, and so on. For instance, in developing countries like India, customers (even belonging to the upper class) are price sensitive, and they may not buy highly priced brands. Therefore, premium priced brands of Nike, Reebok, and Adidas did not meet much success in India for their high priced brands.

10.    Economic Conditions: The economic conditions prevailing in the market must be considered while fixing prices. During the times of recession, when consumers have less money to spend, the marketers may reduce the prices to influence buying decision of the consumers. However, during economic boom, the marketers may charge a higher price.