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Chapter 10 : Export Pricing Strategies Learning Objectives:

Chapter 10 : Export Pricing Strategies Learning Objectives: Understand the pricing dynamics for international markets Variables to be considered in setting export prices Objectives Terms of sale Terms of payment Price escalation Adjusting to foreign currency fluctuations

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Chapter 10 : Export Pricing Strategies Learning Objectives:

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  1. Chapter 10 : Export Pricing Strategies • Learning Objectives: • Understand the pricing dynamics for international markets • Variables to be considered in setting export prices • Objectives • Terms of sale • Terms of payment • Price escalation • Adjusting to foreign currency fluctuations • Price negotiations • Intrafirm pricing • Leasing • Dumping • Gray markets

  2. Pricing Dynamics • Skimming • Market Pricing • Penetration Pricing International Pricing Situations • First time pricing • Second time pricing • Multi product pricing • Foreign market pricing • Intracompany pricing Export Pricing Strategies • Standard worldwide price • Dual price • Cost-plus method • Marginal cost method • Market differentiate pricing

  3. Export Related Costs and Pricing Escalation • Cost of modifying a product for a foreign market • Operational costs of exporting • Costs incurred in entering foreign market • Value Added Tax (VAT) Export Price Escalation • See table 10.2 P.342 Adjustment to Decrease Price Escalation • Rearrange distribution • Eliminate costly features • Downsize the product • Assemble or manufacture the product in foreign markets • Adapt the product to escape tariffs and tax levies

  4. Terms of Sale Incoterms [International Accepted Definitions Approved by International Chamber of Commerce (ICC)] • Exworks (EXW) • Free Carrier (FCA) • Free Alongside Ship (FAS) • Free On Board (FOB) • Cost and Freight (CFR) • Deliver Duty Paid (DDP) • Deliver Duty Unpaid (DDU)

  5. Consideration For Negotiating Terms of Payment • The amount of payment and the need for protection • Terms offered by competitors • Practice in the Industry • Capacity for financing international transactions • Relative strength of parties involved Terms of Payment • Cash in advance • Letter of Credit • Open Account • Consignment (See Figure 10.5 P.347) Letter of Credit • Irrevocable (V.S) Revocable • Confirmed (V.S) Unconfirmed • Revolving (V.S) Unrevolving

  6. Adjusting to Foreign Currency Fluctuations • Forward Exchange Market • Price Manipulation Price Negotiation Leasing Dumping • Predatory (Intentional) dumping • Unintentional dumping Coordination of Multi-Country Pricing to Avoid Gray Markets

  7. Transfer Pricing Determinants to transfer pricing • Tax Regimes • Local Market Condition • Market Imperfections • Morale of Local Country Manager Setting transfer price Minimize the risk of transfer Pricing tax audit

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