Ch 18 International Pricing

1
(No Transcript)
2
Pricing for International Markets
Chapter
18

• Pricing Objectives
• Meeting competition
• Prestige
• High profit margin
• High sales volume or market share
• PROFIT!

3
Boundaries for Market Price

• Product costs establish the price floor
• Prices for comparable substitute products create
  the price ceiling

Price Ceiling Optimum Price Price Floor
4
International Pricing Approach
Full Cost vs. Variable Cost
18-2
Skimming vs. Penetration
Irwin/McGraw-Hill
5
International Pricing Approach

• Variable Cost
• Views foreign sales as bonus money as long as it
  covers variable costs of doing business there
• Full Cost
• Price is determined by allocating a fair share of
  both fixed and variable costs

Irwin/McGraw-Hill
6
Dumping

• Sale of an imported product at a price lower than
  that normally charged in a domestic market or
  country of origin.
• Occurs when imports sold in the US market are
  priced at either levels that represent less than
  the cost of production plus an 8 profit margin
  or at levels below those prevailing in the
  producing countries
• To prove, both price discrimination and injury
  must be shown

7
International Pricing Approach

• Market Skimming
• Charging a premium price
• May occur at the introduction stage of product
  life cycle
• Penetration Pricing
• Charging a low price in order to penetrate market
  quickly
• Appropriate to saturate market prior to imitation
  by competitors

Irwin/McGraw-Hill
8
Reasons for Price Escalation

• ? Taxes
• ? Tariffs
• ? Administrative Costs
• ? Inflation
• ? Exchange Rate Fluctuations
• ? Varying Currency Values
• ? Middlemen and Transportation Cost

18-3
Irwin/McGraw-Hill
9
Sample Causes and Effects of Price Escalation
Foreign Foreign Foreign Example 1 Example
2 Example 3 Assuming the Importer and Same as
2 but same channels with same margins with 10
percent Domestic wholesaler import- and
channels cumulative Example ing
directly turnover tax
18-6
Manufacturing net 5.00 5.00 5.00
5.00 Transport, c.i.f. n.a. 6.10 6.10 6.10 Tariff
(20 percent c.i.f. value) n.a. 1.22 1.22 1.22 Impo
rter pays n.a. n.a. 7.32 7.32 Importer margin
when 1.83 sold to wholesaler 0.73 (25
percent) on cost n.a. n.a. 1.83 2.56 Wholesaler
pays landed cost 5.00 7.32 9.15 9.88 3.29
0.99 Wholesaler margin (331/3 percent on
cost) 1.67 2.44 3.05 4.28 Retailer
pays 6.67 9.76 12.20 14.16 7.08 1.42
Retail margin (50 percent on cost) 3.34 4.88 6.1
0 8.50 Retail price 10.01 14.64 18.30 22.66
Notes a. All figures in U.S. dollars c.i.f
cost, insurance, and freight n.a. not
applicable. b. The exhibit assumes that all
domestic transportation costs are absorbed by the
middleman. c. Transportation, tariffs, and
middleman margins vary from country to country,
but for purposes of comparison, only a few of the
possible variations are shown. Turnover Tax
Irwin/McGraw-Hill
10
Price Escalation
The Lower Prices are at Home
New York London Paris Tokyo Mexico City
Aspirin 0.99 1.23 7.07 6.53
1.78 Movie 7.50 10.50 7.89 17.29 4.55 Levi 501
jeans 39.99 74.92 75.40 79.73 54.54 Ray-Ban
sunglasses 45.00 88.50 81.23 134.49 89.39 Sony
Walkman 59.95 74.98 86.00 211.34 110.00 Nike Air
Jordans 125.00 134.99 157.71 172.91 154.24 Nikon
camera 629.95 840.00 691.00 768.49 1,054.42
18-7
Los Angeles Madrid Stockholm Berlin Rome
Mariah Carey CD 16.22 16.09 17.82 15.31 20.67 Wind
ows 98 117.99 123.94 179.79 211.20 264.46 Diapers
13.52 5.03 5.42 6.86 10.55
SOURCE Norihiki Shirouzu, Luxury Prices for
U.S. Goods No Longer Pass Muster in Japan, Wall
Street Journal, February 8, 1996, p. B1 and
Elizabeth Fleick, The Cost of Europe Buyer
Beware, Europeans Are Getting Mad as Hell about
Prices, Time International, December 13, 1999,
p. 38.
Irwin/McGraw-Hill
11
Approaches to Lessening Price Escalation

• ? Lower Cost of Goods
• Lower Manufacturing Costs
• Eliminate Functional Features
• Lower Quality
• ? Lower Tariffs
• Tariff Reclassification
• Product Modification
• Partial Assembly
• Repack aging
• ? Lower Distribution Costs
• Shorten Channels of Distribution
• Lower Shipping Costs

18-8
Irwin/McGraw-Hill
12
Gray Market Goods

• Parallel imports
• Trademarked products are exported from one
  country to another where they are sold by
  unauthorized persons or organizations
• Occurs when product is in short supply, when
  producers use skimming strategies in some
  markets, and when goods are subject to
  substantial mark-ups

13
Countertrade

• Countertrade occurs when payment is made in some
  form other than money
• Options
• Barter
• Counterpurchase
• Offset

14
Administered Pricing

• Price fixing
• Trade associations, cartels, government through
  licensing, competitors, etc. establish prices for
  an entire market
• Goal reduce the impact of price competition or
  eliminate it altogether
• Example Japan pg. 569
• Cartel competitors work together to charge
  similar prices, sometimes over an entire
  industry allocation of profits and sales of
  goods established by cartel