Main Factors Determinants That Influence the Export Pricing Strategy: Analytical Essay

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Abstract:

Export pricing strategy is considered to be a fundamental tool for market growth, lack of literatures still exists. The gap is related to lack of both qualitative and qualitative studies specifically for small businesses which can produce an improvement in the industry and for managerial directions which needed to in exporting practices. Through this paper is aiming to explore the main factors and determinants that influence the export pricing strategy.

Introduction:

Pricing strategy can be regarded as an organization’s plan to objectively set prices in a competitive basis in order to achieve it objectives, that linked to the implementation of pricing strategy that can be explained by its behavior and execution, and performance. (Walker & Ruekert, 1987). According to Porter1980, price implementation is formed in way to achieve planned strategic pricing goals and objectives. The supposition of pricing strategy consider an interlinked part of the organization dimension (Motivation, Mentality, and interpretation), (Dutton, 1988). Though, Mintzberg suggested that pricing strategy part of future activities planned, which very sensitive to changes from internal and external factors observed from the business environment.

On other hand, Nagle and Holden suggested that strategy configuration and strategic analysis are elements of pricing strategy, this set of activities of price planning may be share common factors such as time terms, future-looking, and target orientated. The result of pricing planning is tending to be complex and not standard in a specific way. The planning strategy is not focused only on single transaction or event but a set of categories of marketing mix segments, classification, and competitions. Which all based on strategic agenda, the critics on the strategic agenda is can espouse the strategic plan to such high instability, therefore the current pricing issues on the strategic agenda, depend on the expected result of pricing problem on the company’s goals achievement. Therefore, firms’ actions will be implemented if oly managements believe that strategic pricing matters have a reasonable impact on the firm.

This bring up the importance of firm’s obligation level on export activities, and if exports are perceived as a significant part of the overall firm strategy, then pricing strategy will have to play major role in firm plan. Such decisions normally will be taken by senior management, best-practice companies have a pricing committee responsible for the pricing decision-making process, to establish procedure and commitment. Because price eventually impact on profits, the marketer has to set the right price otherwise negative impact will appear on financial result (Raymond, Tanner, & Kim, 2001). (Weekly, 1992)

literature sight that marketers face certain challenges in export pricing, such as competition, grey markets, economic zoon, regulation, fluctuation in exchange rates, and geopolitical (Cavusgil & Sikora , How multinationals can counter gray-market imports, 1988) (Myers, Incidents of gray market activity among US exporters: occurrences, characteristics and consequence, 1999),(Myers. et.al. 2002, Weekly1992). Though, literatures indicate that export pricing strategy (EPS) is influenced directly by micro-factors, nature strategies and practices. In this paper we will analyse three main export strategies factors.

2. Exporting Pricing (EP)

According to (Tan & Sousa, 2011)The phenomena of EP can be described as the hidden forces that drive firm’s EP decisions, consider skimming pricing strategies which includes high price and more often used for new pricing, which come under umbrella of differentiations where the firms hold a important cost advantage. Cavusgil and Zou, (1994) suggested four factors that attributed to the configuration of (EPS).

First, EPS is influenced by organization and management attitude which is translated by the managerial capability, expertise to have high probability to create and effectively execute EPS and to achieve competitive advantages, and firms’ factor such as size, internal resources, location, and centralization (Douglas & Carig, 1989). Second, products and services factors; emerged from the theories related to products/ services exported, which have a significate influence in EP which considered as core factors in pricing decisions such as ( Product range, type, cost structure, and stage on life cycle as most important factors( Myers and Cavusgil, 1996), where cost is the most used as benchmarks in price determination because it minimum price which cannot be accepted in long-term.

Third factor is associated with industry nature; which referred to market structure, regulation, degree of innovation which is the most important in global competition due to the fact that advancement in technology regarded as success factor (Abratt & Pitt, 1985). Fourth, the difference between local and abroad market; which result of the environmental difference between local and foreign market such as currency volatility.

2.1 Export pricing strategies and practices.

(Tan & Sousa, Research on Export Pricing: Still Moving Toward Maturity, 2011) suggested that this group of factors based on manager experience that influences the EPS namely are; Competitive position, price fundamental, price process, and practices. Which they will be examined in detail her after.

2.1.1Competitive position

Since mid of 90s export market gone through major development du to rapidly advancement in technology and reform of regulation as well as economic fundamentals (Simon,1995). In fast pace environment change happened very often which is explained by increase in use of differentiation, in some particular markets the client base is equally homogenous and provided by various sellers with certain technologies. (Tellis, 1986) argues that in such a situation with this type of buyers the level of differentiation become less attractive in terms of superior advantage and sales driven by competitive price, this theory call to the adoption of a competitive pricing position.

Where in competitive pricing strategies, rivals’ prices are lively reviewed, and the objective is to set price at the same level of competitors. But this approach embodied disadvantage rivals in export market, as domestic market will not be affected by this factor regarding the differences between domestic and foreign marker. For instance, economic and regulation reform effect only external marketers not local rivals. On other hand Myers et al, 2002, demonstrated that marketers adopting this strategy, will constrained their pricing strategies to competition, setting their level of prices at either more and less than their competitors’ prices. In addition, (Kirpalani & Macintosh, 1980) (Mintzberg, 1987) suggested that international experience in positively correlated to export performance and because of pricing is element of marketing strategy, the selection of the adoption of competitive export pricing by management will be enabled by the company’s international experiences. C suite commitment in competitive pricing is in line with degree of importance of the management grant to exports, according to Gundlach 1996, company that engage in competitive pricing strategy such as predatory, fix prices to low level or reduce profit in short terms in seeking long term profit margin objective, and it’s the long term strategy which deliver profit with high commitment to pricing strategy.

Moreover, currency influence the competitive pricing strategy, one of competitive tools of currency is the strategic choice by marketer when they in country with a weak local currency, therefore the price can be used in way to overcome market share gain. Though, in a situation where the export market suffers from currency depreciation, which will affect the marketer competitive advantage, also when the export market hit by high inflation rates, the marketer can use the competitive advantage as aforementioned, with weaker currency, setting the prices below the domestic competitors without losing profit.

3. Price Setting Fundamentals

Price setting concepts is managerial principle used by companies to enable their pricing strategy, it included manly four concepts, pricing objectives, centralization, method, and orientation which we will examine in more details.

First, pricing objectives (PO) is the first step in determine the EPS, its logical to define pricing objective as strategic and economic goals, set by management in product or service pricing, (Diamantopoulso and Mathews 1995). Which reflect not only a company’s export factors but also represent the pricing aims of the company as part of overall corporate strategy (Morris and Morris 1990), change in the markets at different stage of product life cycle also differ within the markets, result in changes in pricing objectives frequent change over time. Sight found in literatures found several pricing objectives segments related to content, the desires level of achievement, and the associated timeline, in addition Morris 1990 suggested 21 different objectives, which can be profit or competitive positioning ( Samiee, 1987). Such as return in profit (RIO) and growth, where competitive objectives are barriers to entry, markets hare, and matching competitors’ practice.

According to Guiltinan and Gundlach, (1996) PO can also contradicting and same time complementary, subjects to hierarchical concern, because of this contradiction derived from temporal problems, related to mismatch of short/ long terms objectives that are not well connected to each other. Hence PO are influenced by pricing factors for instance, at the stage of produce life cycle, at the time of product/ services changes status from new to mature status the PO also should change; at the start stage is common to have profit orientated objectives, where in mature stage is common to adopt a competitive orientated objective (Porter 1986). In addition, in market growth, when competition within the market intensifies it will be required to adopt a competitive position in order to survive, (Simon 1995). Moreover Cavusgil 1996, suggested that exchange and inflation rate fluctuations affect the PO, because are fundamental elements for pricing decision.

Second centralization of and EPS; its men the level organization at which the price decision is decided, who is responsible, or level of duty assigned, is important for EPS. Exporters have to manage different customers preferences and demands that totally different from local. Therefore, (Anderson , 1985) suggested that the sales people play major role, sales man has to deal directly with demand of customers and most of the time sale point decision increase the responsiveness of well-informed customers. Hence, any division between salespeople and management because of the former is usually focused on sales volume and its factors, on other hand management is usually more concern on profit figures. Regardless of the fact that sales people have limited awareness of the determinants that effect the costs, salespeople remines the at last stage of centre of decision control because its has to deal with different preferences of customers that are taken into account to address price objection to them and they better meet the client needs (Winkler, 1983).

The third concepts of EPS related to the method used, which is the exact way of calculating and achieve the price, there are many methods to calculate the price and they differ depend on the industry, product types, and production and distribution channels. For that, many organizational and environmental factors affect the method used. The most well knowing method are either market-based or cost-based, the cost of product and resources which they influence the pricing strategies, used as base for a price determination. The drive is, the costs provide minimum prices for long term, cost are easy to implement, setting the prices covers the cost and mark-up profit. Cost-based pricing strategies are sign of firms that seeking profits, particularly for companies with short-term expectations within the markets ( Cavusgil 1996).

In price sensitive markets, EPS formed taken into account demand and competitive spectrum result to be more appropriate than cost-based pricing. At some point choice to adopt a market-based strategy is driven by the fact that are operating in intensive competition markets and the prices are chosen the market leaving little room for discretion for the marketer, this is approved if the latter is not a market leader. According to Myers et al, (2002) “firms adopting a market-based approach focus on the customers’ ability to pay for the product/ service, or the value placed on that product, or both”. For instance, EPS set to penetrate the market, the practice to set a low price for new product in order to accelerate the adoption and establish in this tactic normal standard. Last concept of EPS is price orientation, Smith and Meiskins 1995, where the first to explore it, and based on behavioural account of managerial pricing orientations such as cost, sale, competition, strategic pricing. Pricing orientations are the factors that affect managerial choices of pricing strategies and are directly connected with the firm. Such, (Product life cycle, no of competitors, marketing costs, logistic, foreign customers, production costs).

Conclusion

The concept of EPS which examined the factors that are considered as an integral part of the general strategy and their sub-factors impact result of internal or external environment. These factors are outlined in literatures, in the business economic environments in which the companies operate and directly affect EPS decision. Factors can have different route identified in four main categories; namely (Industry, product, managerial and countries differences).

Its important to take into account four aspects of EPS; competitive position if the firms is operating in highly competitive markets and the level of standardization is high; the pricing aspects related to the methods used in price setting, the hierarchy and who take the decisions, the objectives of export pricing orientation; the price cycle-related mainly to quotations, the level of control and frequency of pricing renegotiations.

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