Chapter Ten Pricing for Global Markets. Copyright © Houghton Mifflin Company. All rights reserved.10 - 2 Figure 10.1: Global Pricing Strategies.

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Chapter Ten Pricing for Global Markets

Copyright © Houghton Mifflin Company. All rights reserved Figure 10.1: Global Pricing Strategies

Copyright © Houghton Mifflin Company. All rights reserved Company Internal Factors Profit and Cost Factors

Copyright © Houghton Mifflin Company. All rights reserved

Copyright © Houghton Mifflin Company. All rights reserved

Copyright © Houghton Mifflin Company. All rights reserved Company Internal Factors (cont’d) Transportation Costs Tariffs Taxes

Copyright © Houghton Mifflin Company. All rights reserved Company Internal Factors (cont’d) Local Production Costs Channel Costs

Copyright © Houghton Mifflin Company. All rights reserved Market Factors Affecting Pricing Income Levels Competition

Copyright © Houghton Mifflin Company. All rights reserved Environmental Factors Affecting Price Exchange Rate Fluctuations Inflation Rates

Copyright © Houghton Mifflin Company. All rights reserved Environmental Factors Affecting Price Price Controls Regulatory Factors: Dumping Regulations

Copyright © Houghton Mifflin Company. All rights reserved Managerial Issues in Global Pricing Determining Transfer Prices –Impact of Tax Structure –Internal Considerations –External Problems Quoting Price in a Foreign Currency –How to Incorporate a Foreign Exchange Rate into a Selling Price Quote –Selection of a Hedging Procedure

Copyright © Houghton Mifflin Company. All rights reserved Managerial Issues in Global Pricing (cont’d) Dealing with Parallel Imports or Gray Markets Managing Export Price Escalation Global Pricing Strategies

Copyright © Houghton Mifflin Company. All rights reserved

Copyright © Houghton Mifflin Company. All rights reserved Source: From “Prices at the Europlex,” The Economist, March 27, 1999, p Copyright © 1999 The Economist Newspaper Group, Inc. Reprinted with permission. Further reproduction prohibited. Figure 10.4: Price of a Movie Ticket in Major European Cities and New York City

Copyright © Houghton Mifflin Company. All rights reserved Figure 10.5: Financing Global Marketing Transactions

Copyright © Houghton Mifflin Company. All rights reserved Financing International Marketing Transactions (cont’d) Risks –Commercial Risk –Foreign Currency Risk –Transfer Risk –Political Risk Customer- Arranged Versus Supplier-Arranged Financing

Copyright © Houghton Mifflin Company. All rights reserved Export Payment Terms Risk/Cost Tradeoff Risk to Exporter Least Risk____________________________________________ Highest Risk ConfirmedIrrevocableBankBank Cash inIrrevocableLetter ofCollectionCollectionOpen AdvanceLetter of CreditCreditSight DraftTime DraftAccount Cost to Buyer Highest Cost ___________________________________________ Least Cost SOURCE: Business America, February 1995.

Copyright © Houghton Mifflin Company. All rights reserved Sources of Financing Commercial Banks –Forfaiting: Financing without Recourse Government-Sponsored Financing: The Export-Import Bank –Short-Term Financing –Medium-Term Financing –Long-Term Financing –The Value of Eximbank Loans to U.S. Exporters –Financial Engineering: A New Marketing Tool

Copyright © Houghton Mifflin Company. All rights reserved Sources of Financing (cont’d) Noncash Pricing: Countertrade

Copyright © Houghton Mifflin Company. All rights reserved Source: Barter, Compensation and Cooperation, Credite Suisse, Zurich, Switzerland, Vol. 47, IV, 1978, pp Reprinted by permission. Figure 10.6: Forms of Countertrade

Copyright © Houghton Mifflin Company. All rights reserved Sources of Financing (cont’d) –Barter –Compensation Arrangements Full vs. Partial Compensation Parallel Deals Linked Deals Triangular Compensation Offset Deals Cooperation Agreements –Dangers in Compensation Deals –Precautions for Countertrade –Organizing for Countertrade