Chapter 14 Pricing Strategies and Tactics

Chapter 14 Pricing Strategies and Tactics

Price Dynamics • Price • Competitive tool • Pricing decisions

Price Dynamics • The alternatives strategies for first-time pricing are: • Skimming: • Market pricing: • Penetration pricing:

Price Dynamics • Price changes occur when • In multiple-product pricing, items are priced indicating:

The Setting of Export Prices • Factors to be considered while establishing the basic premise for pricing:

The Setting of Export Prices • Export pricing strategy • Standard worldwide price: • Dual pricing: • Cost-plus method: • Marginal cost method: • Market-differentiated pricing:

The Setting of Export Prices • Export-related costs: Exist along with the normal costs • Include:

The Setting of Export Prices • Price escalation: • Value-added tax (VAT):

The Setting of Export Prices • Methods that focus on cost cutting are:

Terms of Sale • Incoterms:

Terms of Payment • Exporter’s credit policy determines: • Factors for negotiating terms of payment:

Terms of Payment • Cash in advance: • Most favorable term to the exporter • Letter of credit:

Terms of Payment • Draft: • Documentary collection: • Shipping documents and the draft are presented to the importer through banks acting as the seller’s agent

Terms of Payment • Banker’s acceptance: • Discounting: • Open account:

Terms of Payment • Consignment selling: • Most favorable term to the importer

Getting Paid for Exports • Commercial risk: • Commercial defaults result from: • Political risk:

Getting Paid for Exports • Factors that complicate the assessment of a foreign private buyer:

Managing Foreign Exchange Risk • Approaches to protect against currency related risks: • Forward exchange market: • At which it will buy the foreign currency the exporter will receive when the importer makes payment

Managing Foreign Exchange Risk • An option: • Currency futures market: • Minimum transaction sizes are smaller on the futures market

Managing Foreign Exchange Risk • Techniques to adjust pricing in view of either a more favorable or an unfavorable domestic currency rate: • Pass-through: • Absorption: • The goal is long-term market-share maintenance in a highly competitive environment

Managing Foreign Exchange Risk • Pricing-to-market: • Other adjustment strategies

Sources of Export Financing • International marketers assist customers abroad in securing appropriate financing • Export financing terms affect the final price paid by buyers • Commercial banks

Sources of Export Financing • Forfaitingand Factoring • Forfaiting: • The importer pays the exporter with bills of exchange or promissory notes

Sources of Export Financing • Benefits to the exporter are: • Factoring houses: • Provide the exporter with complete financial package –

Sources of Export Financing • Official trade finance –

Sources of Export Financing • Advantages of trade financing:

Leasing • Leasing companies develop new value-added services • Lessors have evolved into partners in business activities

Pricing within Individual Markets • It is determined by: • Corporate objectives: • Costs: Used as a basis for price determination • Include • Customer behavior and market conditions: Demand sets a price ceiling • Price elasticity of consumer demand:

Pricing within Individual Markets • Market structure: • Environmental constraints

Pricing Coordination • Necessary in regional markets such as the European Union • Important with more global and regional brands in the global marketer’s offering • Has to be on worldwide basis as parallel imports surface in markets in which price discrepancies exist

Transfer Pricing • Pricing of sales to members of the extended corporate family • Has to be managed in a world characterized by:

Transfer Pricing • Establish the appropriate transfer price to achieve the following objectives:

Transfer Pricing • From a company-wide perspective: • Can be based on costs or on market prices • Allows the company to repatriate revenues

Transfer Pricing • International transfer pricing objectives leads to conflicting objectives when: • Three philosophies of transfer pricing have emerged over time: • Arm’s-length price:

Transfer Pricing • Transfer pricing challenges • Performance measurement • Taxation • External -

Countertrade • Countertrade: Conditions that support business activities are:

Countertrade • Countertrade transactions are beneficial • Use of countertrade

Countertrade • Excellent mechanism to gain entry into new markets • Provides stability for ________ sales • Under certain conditions, it ensures the quality of an international transaction

Chapter 14 Pricing Strategies and Tactics