Pricing Strategy.
The key issue that must be addressed when developing a pricing strategy in the face of currency volatility is whether to emphasize market share or profit margin. Following dollar depreciation, for example, U.S. exports will gain a competitive price advantage on the world market. A U.S. exporter now has the option of raising its dollar price and boosting its profit margins or keeping its dollar price constant and expanding its market share. The decision is influenced by factors such as whether this change is likely to persist, economies of scale, the cost structure of expanding output, consumer price sensitivity, and the likelihood of attracting competition if high unit profitability is obvious.
The greater the price elasticity of demand —the change in demand for a given change in price—the greater the incentive to hold down price and thereby expand sales and revenues. Similarly, if significant economies of scale exist, it generally will be worthwhile to hold down price, expand demand, and thereby lower unit production costs. The reverse is true if economies of scale are nonexistent or if price elasticity is low.