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CHAPTER 11: PRICING FOR INTERNATIONAL MARKETS - Coggle Diagram
CHAPTER 11: PRICING FOR INTERNATIONAL MARKETS
Variables Impacting Price
Tariffs
Costs
Attitudes
Competition
Currency fluctuations
Methods of price quotation
Methods of payment
Pricing Policy
Pricing decisions
Active instrument to accomplish market objectives
Company sets prices rather than following market prices
Achieve objectives: target returns on profit, sales volume
Static business element
Views exports as passive contribution to sales volume, and probably only exports excess inventory
Places low priority on foreign business
Parallel Imports
Firms charge different prices per country
Parallel (gray) market
Product sold to developing country for discounted price
Product exported illegally to other countries for same price
Results in competition between company and own subsidiaries or branches
Exclusive distribution
Company restricts which retailers can carry product
Approaches to International Pricing
Full-cost pricing
No unit of similar product is different in cost from others; each must bear full share of total fixed and variable cost
Suitable when high variable costs relative to fixed costs
Variable-cost pricing
Firms are concerned only with marginal or incremental cost of producing goods to be sold overseas
Foreign sales are a bonus contribution to net profit
Practical when fixed costs are high and there is unused production capacity
Skimming pricing
Used to reach segment of market that is price insensitive and willing to pay a premium price for product
Used in markets with two income levels: wealthy and poor
Penetration pricing
Deliberately offering products at low prices
Competitive maneuver to capture market share
Price Escalation
Costs of Exporting
Key cause of price escalation
Main elements
Shipping and packing costs
Insurance
Financing costs
Tariffs, taxes, and administrative costs
Larger middleman margins
Exchange rate fluctuations
Tariffs a special form of taxation
Serve to discriminate against all foreign goods
Administrative fees add to overall export cost
Obtaining export licenses, import licenses, and other documents
Physical arrangement for transportation
Inflation
Causes higher cost of production and replacement
Company raises price of good for consumer
Deflation
General costs low in market
All in supply chain pressured to lower costs to make sales
Company must raise brand value to win consumer trust
Exchange Rate Fluctuations
World trade contracts difficult to write
Varying Currency Values
Changes cost of exporting products and impacts price
Middleman and Transportation Costs
Channel diversity impacts exporting costs
Costs difficult to anticipate
Sample Effects of Price Escalation
A Spiral Effect
Higher prices lead to lower sales
Less turnover for middlemen
Middlemen insist on higher margins to defray costs
Company must raise prices
Confines sales to limited segment of market
Approaches to Reducing Price Escalation
Lowering Cost of Goods
Lowered cost of manufacturing impacts entire chain
Lowering Tariffs
Reclassify product into lower customs classification
Lowering Distribution Costs
Shorter channels keep prices under control
Using Foreign Trade Zones
Free trade zones
Added charges, taxes, and tariffs can be avoided
Final price of product not as high; more competitive
Dumping
Two approaches to dumping international shipments
Sold at price below cost of production
Sold in foreign market below price of same goods in home market
Highly regulated pricing approach
WTO rules allow for imposition of a duty when goods are dumped
Leasing in International Markets
Benefits of Leasing
Opens door to large segment of market
Eases risk of selling new, experimental equipment
Better maintenance and service on overseas equipment
Equipment leased and in use helps sell other companies in that country
Revenue more stable over time than direct sales
Disadvantages of Leasing
Inflation
Currency devaluation
Expropriation
Political risks
Countertrade as a Pricing Tool
Countertrade
A pricing tool that international marketers should employ
Willingness to countertrade is a competitive advantage
Also known as a barter
Problems of Countertrading
Determining the value and potential demand of good offered as payment is a challenge
Ways to overcome challenge
Conduct preliminary research prior to countertrade
Use a barter house; they specialize in trading goods acquired through countertrading agreements
The Internet and Countertrading
May become most important venue for countertrading
Several barter houses have auction sites
Electronic barter economy with a universal e-dollar
Price Quotations
Necessary Components
Clear description of who is responsible for transportation of goods, including who pays and from which point
Specification of currency to be used, credit terms, and the type of documentation required
Definition of quantity and quality
Administered Pricing
Administered Pricing
An attempt to establish prices for an entire market
Legality of agreements varies from country to country and from time to time
Cartels
Many companies producing similar products work together to control markets for goods and services they produce
Unable to maintain market control for indefinite periods
Legality of cartels is not clearly defined; varies by country