Chapter 11 Export Pricing * * * * * * Product Price

1
Chapter 11Export Pricing
2

Economic
Social
Demographic
Marketing Mix
Product Price Promotion Place

Marketer
Target Market
Political
Cultural
Feedback
Technological
Legal
3
Pricing Dynamics

• Price is the only element generating revenue
• Pricing strategy involves skimming, penetration
• Depends on the entry strategy of the firm
• Pricing Situations could be as follows
• First-Time Pricing
• Changing Pricing-proactive or reactive
• Multiple-Product Pricing

4
ASSESSMENT OF PRICING ENVIRONMENTS

• EXTERNAL
• Market-related factors
• Nature of demand/target audience characteristics
• Government regulations (e.g., duties)
• Exchange rate stability
• Industry-related factors
• Competition intensity
• Nature of competition

• INTERNAL
• Marketing Mix
• Product (e.g., old/new standardized/differentiate
  d
• Distribution system (e.g., length)
• Promotion needs (e.g., sales efforts)
• Company characteristics
• Extent of internationalization
• Countries exported to
• Management attitudes
• Importance of exports
• Overall price position of firm

Pricing Policy Selection
Pricing Strategy Determination
Exhibit 11.2 Stages in Setting Export Prices
Setting of Specific Price
5
Export Pricing Strategy

• Standardization vs. Adaptation in Pricing
• Price differentiation/adaptation can be based on
• Cost-plus
• Marginal cost
• Full vs. variable cost
• Market differentiated

6
Reasons for Price Escalation

• Cost of exporting
• Taxes, tariffs and administrative costs
• Inflation/deflation
• Exchange rate fluctuations
• Varying currency values
• Middlemen and transportation costs
• See Exhibit 11.4 as an example of Price Escalation

7
Overcoming Price Escalation

• Lowering cost of goods
• Adapt the product
• Using efficient method of manufacturing
• Global sourcing, off-shore manufacturing, produce
  overseas
• Lowering product quality
• Take a lower profit
• Lowering distribution costs
• Using Foreign Trade Zones (FTZ)
• Reorganize the channel of distribution
• Use new or more economical tariff or tax
  classification

8
Term of Sale

• Incoterms the internationally accepted standard
  definitions for terms of sale set by the
  International Chamber of Commerce (ICC)
• Four Categories
• E-terms Seller make the goods available to the
  buyer only at the sellers own premises
• F-terms Seller is called upon to deliver the
  goods to a carrier appointed by the buyer
• C-terms whereby the seller has to contact for
  carriage but without assuming risk of loss or
  damage to the goods or additional costs after the
  dispatch
• D-terms seller has to bear all the costs and
  risks to bring the goods to the destination
  determined by buyer

9
Selected Trade Terms (Incoterms)

• Ex-works (EXW)
• Free carrier (FCA)
• Free alongside ship (FAS)
• Free on board (FOB)
• Cost and freight (CFR)
• Delivered duty paid (DDP)
• Delivered duty unpaid (DDU)

10
Getting Paid for Exports

• Risks involved and how to overcome them
• Commercial risk
• Political risk
• Buyers credit worthiness
• Foreign Exchange risk
• Letter of Credit
• Methods of Payment

11
Export Import Process

Ships
Exporter
Importer
Bill of lading
Receives payment
Payment  
Opens Letter of Credit  
Informs
Reimbursement
Importers Bank
Exporters Bank
Informs
12
Exporter Strategies Under Varying Currency
Conditions
13
Methods of Payment (see Exhibit 11.7)

• Cash in advance
• Letter of credit
• Drafts-similar to a personal check
• Documentary collection
• Bankers acceptance
• Discounting
• Open account
• Consignment selling

14
Sources of Export Financing

• International marketers assist their customers
  abroad in securing appropriate financing
• Commercial Banks
• Forfaiting and Factoring
• Official trade finance

15
Sources of Export Financing

• The following entities insure credit risks for
  exports.
• Export credit agencies (ECAs)
• Export-Import Bank of the United States (Ex-Im
  Bank)
• The Overseas Private Investment Corporation
  (OPIC)
• The Agency for International Development (AID)
• The U.S. Department of Agricultures Commodity
  Credit Corporation (CCC)
• Small Business Administration (SBA)

16
Leasing

• Trade liberalization is expected to benefit
  lessors both through expected growth in target
  economies and eradication of country laws and
  regulations hampering outside lessors.
• Total net income from leasing is often higher
  than it would be if the unit was sold.

17
Dumping

• Definition
• Predatory vs. Unintentional dumping
• Remedies for dumping
• Antidumping duty is a duty imposed on imports
  alleged to be dumped or sold at less than fair
  market value on a domestic marketplace
• Countervailing duties a duty imposed on imports
  alleged to be priced at less than fair market
  value, due to subsidization of an industry by a
  foreign government

18
Chapter 17

• Global Pricing

19
Transfer Pricing
0

• Definition Intra-corporate pricing, is the
  pricing of sales to members of the extended
  corporate family
• MNEs engage in transfer pricing to take advantage
  of the market
• Why transfer pricing-Influences/Reasons (see
  Exhibit 17.1)
• Benefits and Costs of transfer pricing
• Governments and MNEs are in constant negotiations

20
Transfer Pricing Objectives
0

• Transfer pricing is established to achieve the
  following objectives
• Competitiveness in the international marketplace
• Reduction of tariffs and taxes
• Management of cash flows
• Minimization of foreign exchange risk
• Avoidance of conflicts with home and host
  governments
• Internal concerns such as goal congruence and
  motivation of subsidiary managers

21
Company Performance and Transfer Pricing
0

• Intra-corporate pricing complicates internal
  control measures
• Subsidiarys profit performance perception issues
• Cultural differences regarding efficiency
• Dual book keeping
• Compensations in budgets and profits plans
• Taxation

22
Pricing Within Individual Markets
0

• Pricing within the individual markets is
  determined by
• Corporate objectives
• Costs
• Customer behavior and market conditions
• Market structure
• Environmental constraints
• Dealing with financial crisis Asian, European,
  and Latin American currency fluctuations

23
Countertrade-Definition and Types
0

• Barter arrangements (simple barter transactions
  are less popular nowadays)
• Counterpurchase (parallel barter agreement)
• Buyback (compensation arrangement)
• Clearing Arrangements (clearing accounts were
  firms can deposit and withdraw the results of
  their countertrade activities)
• Switch-trading (credits can be sold or
  transferred to a third party)
• Offset (industrial compensation mandated by
  governments)

24
Countertrade-Benefits and Costs
0

• Benefits/Reasons are as follows
• Permits the covert reduction of prices and
  therefore allows firms and governments to
  circumvent price and exchange controls
• Gain entry into new markets
• Preserve Hard Currency
• Improve BOP Account Performance
• Provides stability for long-term sales/market
• Force Reinvestment of Proceeds
• Costs/Limitations
• Requires that accounts be settled on a
  country-by-country or even transaction-by-transact
  ion basis (uncompetitive goods may be marketed)
• May compromise quality, efficiency of production,
  and lowering of world consumption

25
Organizing for Countertrade In-House versus
Third Parties