Chapter 18 - Pricing for international markets. What you should learn from chapter 18: Components of pricing as competitive tools in international marketing, how to control pricing in parallel import or gray markets, price escalation and how to minimize its effect, countertrading and its place in international marketing practices, the mechanics of price quotations, the mechanics of getting paid.
International Marketing 15th edition Philip R. Cateora, Mary C. Gilly, and John L. Graham Pricing Policy Parallel Imports • Parallel imports – Develop when importers buy products from distributors in one country and sell them in another to distributors who are not part of the manufacturer’s regular distribution system • Occur whenever price differences are greater than cost of transportation between two markets • Major problem for pharmaceutical companies • Exclusive distribution Roy Philip FullCost Versus VariableCost Pricing • Variablecost pricing – Firm is concerned only with the marginal or incremental cost of producing goods to be sold in overseas markets • Fullcost pricing – Companies insist that no unit of a similar product is different from any other unit in terms of cost – Each unit must bear full share of the total fixed and variable cost Roy Philip Skimming Versus Penetration Pricing • Skimming – Used by a company when the objective is to reach a segment of the market that is relatively price insensitive – Market is willing to pay a premium price for the value received • Penetration pricing policy – Used to stimulate market and sales growth by deliberately offering products at low prices Roy Philip Sample Causes and Effects of Price Escalation Exhibit 18.2 Roy Philip Approaches to Lessening Price Escalation (1 of 2) • Lowering cost of goods – Manufacturing in a third country – Eliminating costly functional features – Lowering overall product quality • Lowering tariffs – Reclassifying products into a different, and lower customs classification – Modify product to qualify for a lower tariff rate within classification – Requiring assembly or further processing – Repackaging Roy Philip Approaches to Lessening Price Escalation (2 of 2) • Lowering distribution costs – Shorter channels – Reducing or eliminating middlemen • Using foreign trade zones to lessen price escalation – Establish free trade zones (FTZs) or free ports • Taxfree enclave not considered part of country • Postpones payment of duties and tariffs • Dumping – Use of marginal (variable) cost pricing – Selling goods in foreign country below the price of the same goods in the home market Roy Philip How Are Foreign Trade Zones Used? Exhibit 18.3 Roy Philip Leasing in International Markets(1 of 2) • Selling technique that alleviates high prices and capital shortages • Opens the door to a large segment of nominally financed foreign firms – Firms can be sold on a lease option but might be unable to buy for cash • Can ease the problems of selling new, experimental equipment – Because less risk is involved for the users Roy Philip Leasing in International Markets(2 of 2) • Helps guarantee better maintenance and service on overseas equipment • Helps to sell other companies in that country • Revenue tends to be more stable over a period of time than direct sales • Leasing disadvantages – Inflation may lead to heavy losses at end of contract period – Currency devaluation, expropriation and political risks Roy Philip 10 Countertrade as a Pricing Tool • Types of countertrade – – – – Barter Compensation deals Counterpurchase or offset trade Product buyback agreement Roy Philip 11 Countertrade as a Pricing Tool • Problems of countertrading – Determining the value of and potential demand for the goods offered – Barter houses • The Internet and countertrading – Electronic trade dollars – Universal Currency/IRTA • Proactive countertrade strategy – Included as part of an overall market strategy – Effective for exchangepoor countries Roy Philip 12 Transfer Pricing Strategy (1 of 2) • Prices of goods transferred from a company’s operations or sales units in one country to its units elsewhere – May be adjusted to enhance the ultimate profit of company • Benefits – Lowering duty costs – Reducing income taxes in hightax countries – Facilitating dividend repatriation when dividend repatriation is curtailed by government policy Roy Philip 13 Transfer Pricing Strategy (2 of 2) • Objectives – Maximizing profits for corporation – Facilitating parentcompany control – Providing all levels of management control over profitability • Arrangements for pricing goods for intracompany transfer – Sales at the local manufacturing cost plus a standard markup – Sales at the cost of the most efficient producer in the company plus a standard markup – Sales at negotiated prices – Arm’slength sales using the same prices as quoted to independent customers Roy Philip 14 ... Selling goods in foreign country below the price of the same goods in the home market Roy Philip How Are Foreign Trade Zones Used? Exhibit? ?18. 3 Roy Philip Leasing in? ?International? ? Markets(1 of 2) • Selling technique that alleviates high prices and ... Used to stimulate market and sales growth by deliberately offering products at low prices Roy Philip Sample Causes and Effects of Price Escalation Exhibit? ?18. 2 Roy Philip Approaches to Lessening Price Escalation (1 of 2) •... Can ease the problems of selling new, experimental equipment – Because less risk is involved for the users Roy Philip Leasing in? ?International? ? Markets(2 of 2) • Helps guarantee better maintenance and service on overseas equipment