The Price Impacts of International Trade (2)

Effective pricing necessitates macroeconomic and microeconomic understanding; pricing complexity deepens in proportion to the degree of international market activity. Pricing must be according to local market purchasing power, especially if the company strategy is one of market capture through high sales. However, when selling a uniform product in multiple markets, pricing becomes a critical concern. For example: pricing low in a poor country while pricing high in a neighbouring richer country will likely lead to resentment among customers in the richer country (assume communications efficiency between customers in different markets – this is the safest premise), and a valuable customer base may be damaged as a result. Although import duties in one country may be higher than in another, and the cost of shipping between manufacturer and market increases with distance, for certain product categories, uniformity of price is a high priority.

For example: Apple products outside the United States are priced reasonably consistently around the world so that brand prestige is not undermined as a result of customers feeling unfairly treated.

The exporter therefore has to offset the high price of transportation and import duty by transferring profits from different national markets, or by manipulating the supply chains feeding the high price import. The latter is possibly the more difficult of the two options, since supply chain costs rise and fall unexpectedly due to multiple macroeconomic and industrial environment factors and ad hoc, responsive reconfiguration is both expensive and difficult. Freight forwarders may be able to secure discounts based on volume/weight combinations, but fluctuation is natural and to be expected, so pegging a strategy around economies that might or might not be made available through artful freight forwarding is unsound practice.