Pricing Strategies:

1
Chapter 17

• Pricing Strategies
• Countertrade and Terms of Sales/Payment

2
Chapter Outline

• Countertrade
• - Types of Countertrade
• - Problems and Opportunities
• Price Quotation
• Terms of Sale
• - Trade Terms
• - Quotation Guidelines

3
Chapter Outline

• Methods of Financing and Means of payment
• - Consignment
• - Open Account
• - Cash in Advance
• - Bill of Exchange (Draft)
• - Bankers' Acceptance
• - Letter of Credit

4
Countertrade

• goods for goods trade (vs. monetary trade)
• government mandate to pay for goods and services
  with something else other than cash

5
Countertrade

• Advantages
• serving as trade financing
• buyer getting rid of surplus of own products
• no concern for fluctuation of exchange rates

6
Countertrade

• Disadvantages
• cumbersome and time-consuming
• costly
• inferior form of exchange
• - requiring "double coincidence of wants"

7
Types of Countertrade

• Barter
• - single transaction of direct exchange of
  products of equal value
• Counterpurchase (Parallel Barter)
• - two transactions of cash sales agreements (of
  unrelated products)
• Compensation Trade (Buyback)
• - products sold and later bought by a party are
  related

8
Types of Countertrade

• Offset
• - for the rights to sell its product in a foreign
  market, the seller must manufacture the product
  locally (in the host country)
• Clearing Agreement
• - line or credit established in central banks of
  two countries
• - use "clearing account units" for exchange of
  products

9
Trade Terms

• EXW (Ex Works)
• - price of product only nothing else being
  included
• FAS (Free Alongside Ship)
• - EXW local transportation in seller's country
• FOB (Free on Board)
• - FAS loading onto the vessel
• CFR (Cost Freight)
• - FOB international transportation

10
Trade Terms

• CIF (Cost, Insurance, and Freight)
• - CFR insurance
• DEQ (Delivered Ex Quay)
• - CIF unloading
• DDP (Delivered Duty Paid)
• - DEQ local transportation in buyer's country

11
Methods of Financing Means of Payment

• Consignment
• Open Account
• Cash in Advance
• Bill of Exchange (Draft)
• - Sight Draft
• - Time Draft

12
Methods of Financing Means of Payment

• Bankers' Acceptance
• Letter of Credit (L/C)
• - Revocable vs. Irrevocable
• - Unconfirmed vs. Confirmed
• - Standby
• - Back-to-Back
• - Transferable