Export pricing strategy

Pricing strategy is a matter of having as much information as possible about costs and the value of a product to various classes of consumers in different markets. The simplest form of pricing is cost- plus which balances the price and resulting sales against production costs, the second alternative is strategic pricing which involves:

• Skimming the market: to make the largest short-run profit possible and retire from the business.
  
• Sliding down the demand curve: In this strategy the company reduces prices faster and further than it would be forced to do. A company doing this has the objective to become established in foreign markets as an efficient producer at optimum volume before foreign or domestic competitors can get entrenched. Primarily used by companies introducing product innovations.
  
• Penetration pricing: This strategy involves establishing a price sufficiently low to rapidly create a mass market. Emphasis is placed on value rather than cost in setting the price. This involves the assumption that if the price is set to bring in a mass market, the effect of this volume will be to lower costs sufficiently to make the price yield a profit.
  
• Pre-emptive pricing: Setting the prices so low as to discourage competition is the objective of pre-emptive pricing. The price will be close to total unit costs for this reason. As lower costs result from increased volume, still lower prices will be quoted to buyers. The assumption is that profits will be made in the long run through market dominance.
  
• Extinction pricing: The purpose of extinction pricing is to eliminate existing competitors from international markets. It may be adopted by large, low-cost producers as a conscious means of driving weaker, marginal producers out of the industry. Since it can be highly demoralizing especially for small firms, it can slow down economic advancement and thus retard development of otherwise potentially substantial markets.
  

Gerald Albaum, Jesper Stransdskov and Edwin Duerr, 2002, International Marketing and Export Management, 4^th ed., Harlow-London: FT Prentice Hall. International pricing, chapter 10.