globalization, currency, pricing & the big deal

[heatherm@eln.bc.ca]

**  with apologies for cross-posting   **

Could one of the many factors making pricing of electronic resources so
very complicated (or wonky, depending on your perspective) be the effects
of globalization?

For example, consider a vendor operating at an international level,
selling the "big deal" in several different countries. To simplify things
a big, let's imagine three countries which are renewing 3-year contracts
at the same time.

The first contract is with a consortium in the vendor's home base of
operations.  Both pricing and vendor's revenue are calculated using the
same currency.  The vendor has paid off amortized costs from initial
technical developments related to the shift to electronic resources, and
has implemented more efficient, automated publishing software, so
naturally the vendor is able to extend a small price decrease (2%), which
covers operating costs and maintains a reasonable profit.  The total
impact on revenue is 2% price decrease.

The second contract is with a consortium in another country.  Pricing is
in the other country's currency.  This country has done well economically
in the past three years; their currency has gained considerable strength.  
Three years ago, the customer's currency was worth 65% of the vendor's
currency; today it is worth more than 80%.  With no price increase at all,
the vendor's revenue would jump by more than 20%.  The vendor could offer
this customer a 10% decrease in price, and still receive a 10% increase in
revenue.

The third contract is with a consortium in a third country; again, pricing
is in the other country's currency.  This country has not done well, and
their currency has decreased significantly in comparison to the vendor's
currency over the past three years.  At that time, the two currencies were
at par; now, the customer's currency is worth 50% of the vendor's
currency.  To maintain the same revenue, the vendor would have to double
the price.  The vendor is very sensitive to the customer's situation, and
decides to give them a break - meet them halfway, in fact.  The vendor
absorbs a 25% decrease in revenue, while the consortium pays a 25%
increase in price.

This oversimplifies the issues involved, of course.  Vendors are likely to
have operating expenses in a variety of currencies as well.  
Nevertheless, to sum up, it does seem like there are perfectly rational
explanations behind some of the apparent wonkiness in pricing.  A vendor
can decrease prices in one place, and receive increased revenue, while at
the very same time, they can increase prices in another place, yet
received decreased revenue from that customer.

thoughts? 

Heather G. Morrison