Factors in International Product Pricing

While working for one of the major hearing aid manufacturers, I had the opportunity to be involved with the international sales team for quite a long time.  That is when I learned that there were different product prices for various countries.

I offered to purchase hearing aid products for my US Audiology practice from our Brazilian distributor, who would have sold them to me for significantly less than the best discounted price from the US division where I did my business.  I quickly found that this was not only very bad politics, but also bad business. That’s because there are many issues that are not usually considered as part of the purchase process–issues such as import-export regulations, taxes, international politics, customs duties, and other complicating factors.

The international pricing of industrial products, such as hearing aids and audiometric equipment, can be a difficult and complex process.    So this week…..Hearing International asks…What variables do international managers need to consider as they ponder the price of their product in another country.

Wolfe (2012) says about globalization that 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 and must be given special attention when moving into global markets.  Pricing is a complex issue  in a home country and may be more or less complicated in a foreign country.  Foreman and Lancioni point out that the world’s economies are becoming increasingly interdependent and more global in scope.  The increased internationalization of these economies adds an additional level of competition from which companies can benefit.   A challenge to these companies in competing successfully, however, is pricing of their products in complex foreign  markets.     Theodosiou and  Katsikeas (2001) found  that the extent to which multinationals standardize their international pricing strategies depends on the level of similarity between home and host countries in terms of customer characteristics, legal environment, economic conditions,and stage of the product life cycle.

 

Influences on pricing for international marketing.

  • The cost of manufacturing, distributing and marketing the product.
  • The actual physical location of production plants.
  •  Currency Exchange Rates –  US export companies are benefiting from a relatively low US Dollar price during the 2010s.  Most  hearing aid  companies, however,  are based in Europe and therefore the high value of the Swiss Franc and the Euro relative to other currencies must be considered. This make imports into the United States from these countries expensive, but exports from the US relatively cheap to other nations.  This has to do not just with demand for a particular product, but also with macroeconomic demand for national currencies, which affects inflation and, by extension, pricing. Currency fluctuations also make it very difficult for companies to make long-term decisions – such as building large factories in global markets. For example, the costs of production may be cheap today, but they could be expensive in the future, impacting upon the price that a manufacturer is forced to charge.
  • The price that the international consumer is willing to pay for the product.
  • The manufacturer’s business objectives. For example, large international companies such as Starbucks may be willing to operate at a loss in some locations because they need a local presence to maintain their economies of scale, as well as their reputation as a global player.  Some hearing aid manufacturers act similarly in order to become “world players.”
  • The price that competitors in international markets are already charging.
  • Business environment factors such as government policy and taxation.
  • National Market Size – A company will often attempt to use the potential volume of sales to estimate the price at which it will need to market a 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.
  • Cultural Differences – One of the more complicated factors in international pricing is cultural variation among 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. Some cultures do not value amplification products and they are seen with significant stigma. Thus, hearing aid prices can be greatly affected depending upon whether a manufacturer’s device is large and obvious or  invisible.
  • Regulations – When setting prices in other countries, companies must research all national regulations relevant to their product, as many countries set price ceilings as well as price floors on certain products.  Others require Value Added Tax (VAT) and other taxes that must be considered during the pricing decisions.

It is obvious then that these pricing decisions are not just arbitrary, but well thought out, and that, with the distributor’s help, the product is well within the reach of most prospective purchasers. Particularly with the financial problems in some European nations these pricing decisions have to be not only crucial, but extremely difficult as the variables that have always been more or less “rules of thumb” are now changing.  The change and how much change is extremely difficult to predict.

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Next Week

Hearing International  will have a guest author:

Dr. Tarek Dousskey, an Audiological Physician from Cairo, Egypt

Lecturer of Audiology at Beni Swif University, Egypt.

 

About Robert Traynor

Robert M. Traynor is a board certified audiologist with 45 years of clinical practice in audiology. He is a hearing industry consultant, trainer, professor, conference speaker, practice manager, and author. He has 45 years experience teaching courses and training clinicians within the field of audiology with specific emphasis in hearing and tinnitus rehabilitation. Currently, he is an adjunct professor in various university audiology programs.

2 Comments

  1. WELL DONE DR. TAREK!! IT IS REALLY AN HONOR& PLEASURE TO READ GREAT ARTICLES FOR YOUNG EGYPTIAN DOCTORS. KEEP THE GOOD WORK.

    1. Dr. El-Shabrawy:

      I was proud to have an old friend and colleague, Dr. Tarek, offer such an interesting posting on a serious topic to Hearing International. If you have a good idea for a posting, please send it to me at traynordr@gmail.com

      Best Regards;

      Bob

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