© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 14 Pricing Strategies and Tactics

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Price Dynamics Price Competitive tool Pricing decisions

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Price Dynamics The alternatives strategies for first-time pricing are: Skimming: Market pricing: Penetration pricing:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Price Dynamics Price changes occur when In multiple-product pricing, items are priced indicating:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Setting of Export Prices Factors to be considered while establishing the basic premise for pricing:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Setting of Export Prices Export pricing strategy Standard worldwide price: Dual pricing: Cost-plus method: Marginal cost method: Market-differentiated pricing:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Setting of Export Prices Export-related costs: Exist along with the normal costs Include:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Setting of Export Prices Price escalation: Value-added tax (VAT):

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Setting of Export Prices Methods that focus on cost cutting are:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Terms of Sale Incoterms:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Terms of Payment Exporter’s credit policy determines: Factors for negotiating terms of payment:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Terms of Payment Cash in advance: Most favorable term to the exporter Letter of credit:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Terms of Payment Draft: Documentary collection: Shipping documents and the draft are presented to the importer through banks acting as the seller’s agent

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Terms of Payment Banker’s acceptance : Discounting: Open account:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Terms of Payment Consignment selling: Most favorable term to the importer

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Getting Paid for Exports Commercial risk: Commercial defaults result from: Political risk:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Getting Paid for Exports Factors that complicate the assessment of a foreign private buyer:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Foreign Exchange Risk Approaches to protect against currency related risks: Forward exchange market: At which it will buy the foreign currency the exporter will receive when the importer makes payment

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Foreign Exchange Risk An option: Currency futures market: Minimum transaction sizes are smaller on the futures market

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Foreign Exchange Risk Techniques to adjust pricing in view of either a more favorable or an unfavorable domestic currency rate: Pass-through: Absorption: The goal is long-term market-share maintenance in a highly competitive environment

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Foreign Exchange Risk Pricing-to-market: Other adjustment strategies

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sources of Export Financing International marketers assist customers abroad in securing appropriate financing Export financing terms affect the final price paid by buyers Commercial banks

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sources of Export Financing Forfaiting and Factoring Forfaiting: The importer pays the exporter with bills of exchange or promissory notes

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sources of Export Financing Benefits to the exporter are: Factoring houses: Provide the exporter with complete financial package –

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sources of Export Financing Official trade finance –

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sources of Export Financing Advantages of trade financing:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Leasing Leasing companies develop new value- added services Lessors have evolved into partners in business activities

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Pricing within Individual Markets It is determined by: Corporate objectives: Costs: Used as a basis for price determination Include Customer behavior and market conditions: Demand sets a price ceiling Price elasticity of consumer demand:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Pricing within Individual Markets Market structure: Environmental constraints

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Pricing Coordination Necessary in regional markets such as the European Union Important with more global and regional brands in the global marketer’s offering Has to be on worldwide basis as parallel imports surface in markets in which price discrepancies exist

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transfer Pricing Pricing of sales to members of the extended corporate family Has to be managed in a world characterized by:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transfer Pricing Establish the appropriate transfer price to achieve the following objectives:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transfer Pricing From a company-wide perspective: Can be based on costs or on market prices Allows the company to repatriate revenues

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transfer Pricing International transfer pricing objectives leads to conflicting objectives when: Three philosophies of transfer pricing have emerged over time: Arm’s-length price:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transfer Pricing Transfer pricing challenges Performance measurement Taxation External -

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Countertrade Countertrade: Conditions that support business activities are:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Countertrade Countertrade transactions are beneficial Use of countertrade

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Countertrade Excellent mechanism to gain entry into new markets Provides stability for ________ sales Under certain conditions, it ensures the quality of an international transaction