Competing in today’s global economy means expanding your business beyond the borders of your company’s home country. Developing an international pricing strategy is an integral part of this expansion. Before entering a foreign market to conduct business, you must understand the pricing structure among the competition that your company may face.
Simply trying to implement the pricing structure currently used domestically will lead to failure internationally. While the basics of pricing strategy still exist when creating an international pricing strategy, several factors must be taken into consideration.
Assessing a country’s governmental influence on pricing will give your company a basis for what price range it can offer its products or services. Some countries, like the United States, allow the market to dictate pricing. However, other countries have pricing for products and services monitored and set by its national government. Government involvement discourages flexibility in regard to pricing strategies of non-domestic business entities. Careful consideration should be made about how this would affect the company’s ability to maximize revenues and profit while remaining in the artificial boundaries created by the government.
Demand for Business
Before entering into a foreign country to conduct business, your company must also determine the potential market size in that country. Is there a demand for what your company has to offer? If not, can your company create a demand large enough in the country to make this international venture profitable? Your company’s pricing strategy will affect demand differently within different borders. Wealthier countries can be more receptive of various prices of goods or services, although limits do still exist. The ranges are simply broader than those for countries with less wealth. In either case, the value of what is offered must be reflected in its price. If this value cannot be seen, then demand will be low.
The differences between the values of national currencies also affect the development of an international pricing strategy. Currency exchange rates fluctuate regularly, aggressively in some countries. Your company’s pricing strategy will have to account for this fluctuation. Failure to do so could result in losses attributed solely to the currency exchange rate between your company’s domestic currency and that of the foreign country.
The complexities involved with developing an international pricing strategy must be attended to before implementation. Not understanding how to approach business in a foreign land can lead to lost profits and missed opportunities to gain market share. Improperly implementing a pricing strategy in another country can also encourage entrance of competition or price wars. There is no perfect plan for creating an international pricing strategy. Your company must, however, determine the strategy that best allows for its ease of entry and profitability, while keeping competitors at bay.