External Factors: Currency Considerations

Marketers selling internationally must be acutely aware of how monetary exchange rates can affect the price of its products in foreign markets. Depending on fluctuations in currency rates, a product’s price in the importing country’s currency can be significantly different from what the marketer has planned, which can have notable marketing implications. For instance, a company seeking to be a low-price market leader may find this strategy works when selling in its home market but when selling in an importing country with a weak currency the product’s price may be at a mid-price level compared to competitive products. This could dramatically impact the perceived value of the product by customers in this market.

Alternatively, if the currency of the marketer’s country is weak compared to the currency in the buyer’s market, a product could sell at a price that is much lower than what the marketer expects. This could lead customers in the importing country to perceive the product to be of lower quality compared to similar products selling at higher prices.

Additionally, in some situations, currency issues may not even permit a buyer and a seller to negotiate an exchange. This is likely to occur when a country’s currency is not widely recognized or when a currency’s value is fluctuating rapidly. Under these conditions, a seller from one country may refuse to accept the currency offered by a buyer from another country. To overcome this, the two parties may agree to an exchange arrangement that does not involve currency. The primary method for carrying out this exchange is through the use of one or more bartering techniques, collectively called countertrade, where a seller ships product to a buyer and in exchange receives the buyer’s product.

As an example, a U.S. marketer of chemical products may negotiate a trade with an African mining company whose currency is not stable. The exchange may involve the U.S. company trading fertilizer in exchange for minerals mined by the African firm. While the value of countertrade occurring is not easily measured, it is believed to be quite significant and is an essential trading option used by many companies throughout the world.