International Pricing Strategies and Global Trade Dynamics

Parallel Markets and the Gray Market

A parallel market occurs when a manufacturing company sells its products to a specific country, but those products are then sold in another unintended country. This is commonly known as the gray market. For example, in the case of Levi's vs. Tesco several years ago, Tesco imported Levi's jeans from the USA at a lower price than the authorized price set by the manufacturer. Levi's took legal action, and the verdict was in favor of Levi's.

Premium Pricing Strategies

Companies utilize premium pricing when they create a unique brand. This strategy is used where a substantial competitive advantage exists and the manufacturer knows they can charge a higher price. Premium prices are typically charged for luxury products or services.

Understanding Price Escalation in Exports

Price escalation is the added cost incurred as a result of exporting products from one country to another. Generally, the lowest price is found in the home market. There are several factors contributing to this increase:

• Cost of exporting: Final prices are raised by shipping costs, insurance, packing, tariffs, and other related expenses.
• Taxes, tariffs, and administrative costs: These costs result in higher prices that are generally passed on to the buyer of the product.
• Inflation: The consumer faces higher prices within the market due to inflationary pressures.
• Middlemen and transportation costs: If the distribution channel is longer, it may be necessary to increase prices to cover additional margins.
• Exchange rate fluctuations and varying currency values: Currency values vary against other currencies on a daily basis, affecting the final cost.

Marketing Channel Objectives and Utility

Marketing channels exist to create utility for customers through four primary objectives:

• Place utility: The availability of a product or service in a location that is convenient to a potential customer.
• Time utility: The availability of a product or service exactly when it is desired by a customer.
• Form utility: The availability of the product processed and prepared for immediate use.
• Information utility: The availability of answers to questions and general communication regarding useful product features and benefits.

Psychological Pricing and Consumer Behavior

The psychological pricing approach is used when a marketer wants the consumer to respond on an emotional, rather than a rational, basis. An example of this is the Price Point Perspective (PPP). For instance, Zara T-shirts are often sold at 9.99 instead of 10.00 to influence consumer perception.

International Trade: Dumping and Agents

Dumping

Dumping refers to products that are sold in international markets below their production cost, or products priced lower in foreign markets than they are sold in the company's domestic market.

Agent

An agent is an intermediary who negotiates transactions between two or more parties but does not take title to the goods being purchased or sold.