Pricing for International Markets

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Chapter 18
Pricing for International Markets
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Pricing for International Markets

• I. Price Escalation - firms must often adjust
  their prices upwards in international markets.
• Reasons Costs related to transportation,
  insurance, tariffs, taxes, storage,
  documentation, packing and middleman margins.
• A. Ways to Reduce Price Escalation
• 1) Marketing action
• 2) Government action

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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
Manufacturing net 5.00 5.00 5.00
5.00 Transport, c.i.f. n.a. 1.10 1.10 1.10 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
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Price Escalation The Lower Prices are at Home
New York London Paris Tokyo Mexico City
Aspirin 0.99 1.23 7.08 6.53
1.78 Cup of coffee 1.25 1.50 2.10 2.80 0.91 Movie
7.50 10.50 7.89 17.29 4.55 Compact
disk 12.99 14.99 23.16 22.09 13.91 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 Gucci
men's loafers 275.00 292.50 271.99 605.19 157.27
Nikon camera 629.95 840.00 691.00 768.49 1,054.42
SOURCE "Tourists and Bargains Galore," Fortune,
June 13, 1994, p. 12.
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Pricing for International Markets

• II. Pricing and the Product Life Cycle
• 1) Skimming
• 2) Penetration
• 3) Market pricing
• III. Export Pricing Strategy
• 1) Standard worldwide prices
• 2) Dual pricing
• 3) Market differentiated pricing

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Pricing for International Markets

• IV. Counter-trade A Sale that encompasses
  more than an exchange of goods and services for
  money.
• A) Reasons for counter-trade
• B) Difficulties
• C) Trends
• D) Reasons for growth

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Pricing for International Markets

• V. Terms of Payment
• 1) Cash in advance
• 2) Open accounts
• 3) Letters of credit
• 4) Consignment
• VI. Leasing

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Leasing in International Markets
Leasing opens the door to a large segment of
nominally financed foreign firms that can be sold
on a lease option but might be unable to buy for
cash. Leasing can ease the problems of selling
new, experimental equipment, since less risk is
involved for users. Leasing helps guarantee
better maintenance and service on overseas
equipment. Equipment leased and in use helps to
sell other companies in that country. Lease
revenue tends to be more stable over a period of
time than direct sales would be.
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Pricing for International Markets

• VII. Dumping Selling goods overseas at a price
  lower than in the exporters home country or
  below cost.
• A) Predatory vs. unintentional dumping
• B) Anti-dumping duties
• C) Countervailing duties

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Pricing for International Markets

• VIII. Gray Marketing - occurs when products are
  diverted from authorized channels in
  international markets and are sold at a lower
  price than is authorized by the manufacturer.
• IX. Reasons for Increase in Gray Markets
• 1) More global products
• 2) Fluctuating exchange rates
• 3) Pricing policies
• 4) Excess supply
• 5) Free rider opportunities

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Pricing for International Markets

• X. Dealing with Gray Markets
• 1) Legal action
• 2) Adapt products to local markets
• 3) Change pricing policies