Chapter 14 Pricing Strategies and Tactics

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Chapter 14Pricing 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: •

•

•



• Export pricing strategy• Standard worldwide price:

• Dual pricing:

• Cost-plus method:• Marginal cost method:

• Market-differentiated pricing:



• 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



• 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



• 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• • •



• Forfaiting and 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 –



• 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

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Chapter 14 Pricing Strategies and Tactics