In an era of globalization, one of the challenges that companies face when selling their products abroad is how to set appropriate prices. Most of the same factors used in setting prices in a single country are taken into account when formulating an international pricing strategy, but many factors often are overlooked in national pricing and must be given special attention when moving into global markets.
National Market Size
One of the main factors to determine an international pricing strategy is the size of the national market, which affects prices in different ways. A company will often attempt to use the potential volume of sales to estimate the price at which they will need to market their product to break even. For larger countries with the potential for more sales, this price may be set lower; for smaller countries, the price may be higher.
Exchange rates also play a significant role in setting prices. Due to discrepancies in the value of different currency, similar products in different countries may be priced differently. This has to do not just with demand for that particular product, but with macroeconomic demand for national currencies, which affects inflation and, by extension, pricing. Companies often have to adjust prices due to fluctuations in exchange rates.
One of the more complicated factors in international pricing is cultural variations between companies. Cultural variations that affect pricing can take many forms, most of which have to do with how members of certain cultures perceive the value of certain products, which in turn affects how much they are willing to pay for them. For example, in the United States women's handbags often are seen as a status symbol. Female consumers, therefore, often are willing to pay high prices. In other cultures, however, handbags are considered more functional, meaning they can only command a significantly lower price.
When setting prices in other countries, companies must research all national regulations relevant to their product. Many countries set price ceilings as well as price floors on certain products. For example, in Nigeria (a large oil producer) the price of gasoline and other petroleum derivatives is capped. Even if the product a company is selling does not have price restrictions, regulations placed on the prices of similar products may affect potential demand and thus price.
Before setting a price, companies also must consider the distribution network by which they are selling their products overseas. For example, if a company is selling a product through franchise licenses, they will likely price their products differently than if they were selling them wholesale to local distributors, as their profit structure would be different.