Pricing Strategies

1. Pricing Methods “The employer does not pay the salaries. It is the customer who pays for the salaries. The employer is just handling the monetary transaction” Henry Ford

- Cost Oriented  Full cost pricing: Price = Fixed Cost + Profit + Variable Cost  Markup pricing: Price as a percentage of sales  Incremental cost pricing: Price is set to cover variable cost only - Demand Orientated Price is set according to the firms estimate of potential buyers’ price elasticity.

2. Skim pricing versus penetration pricing Skim pricing Penetration pricing - product has strong relative advantage - low elasticity of demand - low competition - product is differentiated and difficult to copy - small total market - economies of scale in production - high elasticity of demand - strong competition - product is not differentiated and easy to copy - large market

Cash Flow Pattern of Pricing Strategies Penetration Skimming accumulated Cash Flow Zeit

3. Legal restrictions of pricing decisions While governmental restrictions on pricing vary among different nations, most developed countries have laws relating to: - Dumping - Price fixing - Price discrimination - Price advertising

4. Costs of Exporting  Taxes  Tariffs  Administrative Costs  Inflation  Exchange Rate Fluctuations  Varying Currency Values

5. Lessening Price Escalation 1. Lower Cost of Goods Lower Manufacturing Costs Eliminate Functional Features Lower Quality

2. Lower Tariffs Tariff Reclassification Product Modification Partial Assembly Repack aging 3. Lower Distribution Costs Shorten Channels of Distribution Lower Shipping Costs 4. Foreign Trade Zones

6. Countertrades Barter Compensation Deals Counterpurchase or Offset Trade Product Buy-Back Agreement

7. Why Countertrade? To Preserve Hard Currency To Improve Balance of Trade To Gain Access to New Markets To Upgrade Manufacturing Capabilities To Maintain Prices of Export Goods

8.Transfer Pricing Manipulation of Taxes Manipulation of Duties and Customs Repatriation of Profits Management of Divisions

9. Gray Trades Opportunities for Parallel Imports Arise through Price Differentials Currency Exchange Rate Import Quotas Different Positioning