INNOVATION IN PRICING STRATEGY

Innovation in pricing strategy to be different from an established one

Innovation in pricing strategy to be different from an established one

Introduction

Pricing is generally described as one of the most critical issues that managers face. One 1995 survey of US and European managers polled from a broad range of industries found that pricing was rated as the marketing issue with the highest problem pressure. The role of price in the firm's marketing mix is twofold. First, price is the only marketing mix instrument that creates revenues for the firm. Pricing decisions will have an immediate impact on the company's sales revenues and bottom line. Second, price also signals to the market the company's intended value positioning for the product or service being sold. At the same time, some scholars suggest that the significance of pricing has most likely increased over the years due to a multitude of factors, including inflation, intensified competition, market saturation, and rising consumerism. For multinational companies (MNCs) the complexities of the global environment render price-setting policies an even more bewildering endeavour. Yet, in spite of its claimed managerial relevance, international pricing has received remarkably little research interest relative to other marketing mix instruments. One review of international marketing research covering the 1980s found that merely 14 (1.5%) out of the 893 studies reviewed dealt with pricing. Most of these international pricing studies related to transfer pricing issues. Not surprisingly, the difficulty in obtaining company information on pricing decisions is seen as a major hurdle for doing empirical research in the area. This paper will attempt to highlight how the pricing strategy for an innovative new product should be different from the pricing strategy being implemented by an established one.

Discussion

We first review academic research on the international prices setting process. One very potent force is the market environment. We consider how culture affects consumers' processing of price-related information. Another crucial market force is the local competitive environment. We explore how differences in the competitive environment (e.g., between local companies and multinational companies) affect price-setting decisions. A third critical driver that we look at is currency exchange rate fluctuations and - coupled to this - exchange rate pass-through practices. Just as with other marketing mix instruments, global pricing managers face two countervailing forces when setting international prices: price customization drivers and price harmonization drivers. Basic economics doctrine dictates that companies should maximize their profits through price discrimination (Ackerman and 2001). For many products one can indeed observe huge price differentials across countries. The main challenge, however, triggered by cross-country price gaps, is that price differentials often create arbitrage opportunities that possibly lead to gray market (parallel imports) situations. The final section of this chapter highlights research insights on coping with gray market challenges.

The topic of pricing has not been entirely neglected in international marketing. Most of research, however, has focused on the drivers that influence international (primarily export) pricing decisions and different pricing practices of multinational companies. That prices do vary a great deal across countries is ...