If a Lexus car is priced in U.S. dollars and sold at the dollar converted price in Indian rupees, what problems can be expected? What is the difference between ethnocentric, polycentric and geocentric pricing?
What will be an ideal response?
It will not be possible to sell many cars in India if the price in U.S. dollars is directly converted into local currency. This is the reason why there is price differential, and different methods of pricing are used. Ethnocentric pricing calls for the per-unit price of an item to be the same no matter where in the world the buyer is located. In such instances, the importer must absorb freight and import duties. The advantage of this pricing is that it is extremely simple and does not require information on competitive or market conditions for implementation. The disadvantage is that it does not respond to the competitive and market conditions of each national market. Polycentric pricing permits subsidiary or affiliate managers or independent distributors to establish whatever price they feel is most appropriate in their market environment. There is no requirement that prices be coordinated from one country to another. IKEA takes a polycentric approach to pricing. In geocentric pricing, the company neither fixes a single price worldwide nor allows subsidiaries or local distributors to make independent pricing decisions. Instead, the geocentric approach represents an intermediate course of action. It is based on the realization that unique local market factors should be recognized in arriving at pricing decisions. These factors include local costs, income level, competition, and the local marketing strategies. The important point to note in all pricing systems is that in global marketing there is no such thing as a normal margin.
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