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CHAPTER 12
Pricing for International and Global Markets
CHAPTER OUTLINE
LXXV. Profit and Cost Factors That Affect Pricing
A. Fixed and Variable Costs
LXXVII. Environmental Factors That Affect Pricing
A. Exchange Rate Fluctuations
B. Inflation Rates
C. Price Controls
D. Dumping Regulations
E. Credit and Collection Infrastructure
LXXVIII. Managerial Issues in Global Pricing
A. Managing Export Price Escalation
B. Determining Transfer Prices
CHAPTER OBJECTIVES
At the end of this chapter, students should be able to do the following:
Differentiate between full-cost pricing and marginal-cost pricing and explain the implications of
both to global marketers.
Note how international transportation costs, tariffs, taxes, local production costs, and channel
costs all affect pricing decisions.
Explain how different income levels, cultures, buyer power, and competitive situations in
national markets can require different pricing strategies across these markets.
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Compare and contrast the ways in which exchange rate fluctuations and inflation rates
complicate global pricing.
List various examples of government price controls that global marketers might encounter.
QUESTIONS FOR DISCUSSION
1. Discuss the difficulties involved in having a standardized price for a company’s
products across all countries. What advantages does charging a standardized price
offer?
Difficulties of Standardized Pricing. Numerous costs may make standardized pricing difficult,
including differential tax rates, tariffs, transportation costs, currency fluctuations, and
2. You are an exporter of industrial installations and have received a $100,000 order from
a Japanese customer. The job will take six months to complete and will be paid in full at
that time. Now your Japanese customer has called you to request a price quote in yen.
What will you quote in yen? Why?
During the six-month period, the exporter will be exposed to transaction risk. If he/she simply
3. What factors may influence McDonald’s to price their Big Mac differently throughout
Latin America?
Different taxes, trade margins, customs duties, local labor costs, and competitor pricing
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4. What should be the government’s position on the issue of parallel imports? Should the
government take any particular actions?
Many students might assert that governments should support parallel imports since they reduce
and provide no benefit to their own citizensonly to customers in other countries.
CASE 12.1: THE PRICE OF COFFEE IN CHINA
This case probes the pricing policy issues for global brands. A good way to begin the discussion is
to ask loyal Starbucks customers in the classroom to raise their hand. Call on a couple of them and
ask them what product they regularly buy at Starbucks and what price they pay for that product.
Then ask them what would they think and how would they feel if they traveled to a foreign
country, visited a Starbucks, and discovered that their favorite product was priced $2 less than the
U.S. price. Students state that they would be surprised or outraged that their favorite product will
be less in other markets. Probe these feelings, asking students why they expect prices for the same
product to be the sameor at least similarin each market.
DISCUSSION QUESTIONS
1. What are the possible arguments for pricing a grande latte at $4.50 in Beijing?
The uniform pricing of $4.50 for a Starbucks grande latte in Beijing appeases the expectations
2. What are the possible arguments for pricing lower? For pricing higher?
Lower prices may encourage tea-drinking Chinese consumers from non-elite segments to try
the latte, perhaps changing their consumption habits, increasing their coffee consumption and
3. What might explain why the price of a Starbucks’ coffee in China increased in relation
to its price in the United States over the years?
The company appears to have decided on an elite strategy in China. A more middle-class
4. Evaluate Starbucks’ response to the CCTV exposé. What response would you suggest?
Some students might suggest that CCTV is a government station and taking on the Chinese
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NOTE: This case also can be used to address the greater issue of the relationship of country-of-
origin effects, globalization, and culture clash. When Starbucks opened their Beijing location in the
courtyard of the Forbidden City, many people in China were concerned about cultural changes due
to increased globalization of Chinas economy. Perceived as an example of growing U.S. cultural
hegemony due to globalization, the Forbidden City Starbucks location was the target of public
outcry and media attention. Many sought to force Starbucks to close the location. Some even
pushed for Starbucks national license to be revoked.
CASE 12.2: THE PRICE OF LIFE
This case provides insights into differences in pharmaceutical prices in different countries around
the globe.
DISCUSSION QUESTIONS
1. What factors might contribute to GlaxcoSmithKline’s announcement to discount prices
in emerging markets? Do you think these reasons are altruistic or self-serving?
Many managers who work for multinational firms are concerned with helping others and
2. Should U.S. consumers pay higher prices than Africans for pharmaceuticals? Why or
why not?
Two groups of students typically emerge when responding to this question. One group
usually expresses outrage at the price differentials and offer lower prices available in Africa
3. Should Mexican consumers pay higher prices than Africans? Why or why not?
This is arguably an even more controversial question. Middle income countries such as
Mexico do have a PCI much higher than most African countries. However, as the case states,
an AIDS treatment for a year could cost $6,000 in a country with a PCI of $7,300. Middle
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4. Should U.S. consumers pay higher prices than Europeans for pharmaceuticals? Why or
why not?
As large buyers of pharmaceuticals, European governments are able to negotiate for lower
5. Should national governments pay more for locally produced pharmaceuticals?
This case also highlights a great example of how government buyers see the world a bit
differently from business buyers or consumers. South Africa is not only thinking about AIDS
6. What challenges might pharmaceutical companies face from widely disparate prices?
This case also provides a forum for a discussion of parallel imports or gray markets, since this
is a likely consequence of such disparate prices. Some updates as to gray markets effect on
GlaxcoSmithKline are
The price differential between GlaxoSmithKlines drugs in Africa and those in Europe
Follow-up question: What are the possible impacts of such a gray market on patients and
governments?
Some students may point out that parallel markets in drugs may lower prices in higher
price countries. However, an unauthorized distribution system in high-priced drugs could
CASE 12.3: GAMALI AIR
Ostensibly, this case relates to the countertrade discussion in the chapter. However, other issues of
global pricing lie below the surface.
DISCUSSION QUESTIONS
1. Evaluate Gamali Air’s countertrade proposal.
There are several issues that should be of concern to Ameridere:
Ameridere has no experience in countertrade. They should get a good consultant right away.
Countertrade will add costs to the project. While Gamali Air has suggested that Ameridere
be compensated 5 percent for shipping costs, these are not the only costs involved.
Realistically Ameridere will turn these commodities over to a trader who will want a cut.
On the other hand, there are reasons to seriously consider the request.
The competition will most likely agree to a countertrade deal.
Gamali has a managed currency and is running out of foreign exchange. The government
2. Evaluate the proposal to quote the price in dinars rather than in U.S. dollars.
Gamali Air is essentially asking Ameridere to accept all the transaction risk associated with
the dinar declining against the U.S. dollar between the time of sale and the times of payment
that stretch out over two years. There is indication that Gamalis economy is very unstable:
Oil import costs have soared resulting in a deterioration of balance of payments.
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3. How would you address each of Gamali Air’s requests? Develop a counterproposal that
“both sides can live with.” Explain why your proposal would be reasonably attractive to
both Ameridere and Gamali Air.
Before proceeding with this question you might want to ask students: How important is this
contract to Ameridere? Students can vary on their answers. One positive reason to go through
To be sure that each proposal a student proffers is reasonable, have each student explain why
his/her proposal is good for Ameridere but still acceptable for Gamali Air. Also, ask students
if they were the Brazilian competition, could they do better? It is often helpful to get students
to avoid wishful thinking about what customers or competitors will do by making them be
different sides.